Korea needs urgent supply chain overhaul

A 47-day conflict in the Middle East is increasingly disrupting raw material supply chains across South Korea’s industrial sector. While the country has secured enough crude oil to cover roughly two months of demand, supplies of naphtha, aluminum and urea previously imported from the region have tightened or surged in price.

Added pressure from a weak won has pushed South Korea’s import prices to their highest level since the 1998 Asian financial crisis. Economists expect the increase to filter through to consumer prices with a time lag.

So far, refiners and the government have secured about 118 million barrels of crude oil, enough to support the economy for roughly 60 days. But shortages of naphtha, often called the “rice of the petrochemical industry,” have worsened after disruptions hit Middle Eastern supply routes, which account for 77 percent of imports.

Petrochemical producers have responded by cutting operating rates or temporarily shutting down plants. The impact is now spreading into everyday products, including packaging for food and cosmetics, disposable medical supplies such as syringes, and municipal waste bags. Even asphalt, a byproduct of refining, has surged in price, leading to delays and suspensions in road construction projects nationwide.

Aluminum and urea, both heavily sourced from the Middle East, have also become more expensive as supply chains tighten, weighing on auto production, construction materials and farm output during the spring planting season. The fallout from damage to Qatar’s liquefied natural gas facilities, reportedly struck in Iranian attacks and forced to halt operations, is expected to linger. Because South Korea’s electricity prices are closely tied to LNG costs, the doubling of global prices is adding pressure for higher power tariffs.

Rising raw material costs, combined with the won hovering above the 1,500-per-dollar mark, are now feeding directly into import prices. Last month, import prices rose 16.1 percent from a month earlier, the steepest increase since January 1998 in the aftermath of the Asian financial crisis. Crude oil alone posted its sharpest rise since data tracking began in 1985.

With South Korea heavily dependent on imported energy and raw materials, analysts say the current situation could amount to a combined shock on the scale of the oil crises and the Russia-Ukraine war. That scenario is increasingly showing up in economic indicators.

The effects are already visible in daily life through higher prices and tightening supplies of consumer goods. More concerning is the risk of production slowdowns caused by raw material shortages. The crisis is now testing the government’s and companies’ ability to manage supply shocks. If the Middle East conflict drags on, South Korea may need to quickly reshape its supply chains to prevent disruptions to its manufacturing-driven economy.