Hormuz Risk Persists... KIET Warns Manufacturing Production Costs Could Soar Up to 11.8%

Oil Prices Projected to Reach $125, LNG Up by Up to 90%
"Complex Supply Chain Shock" Extends to Naphtha and Helium

Amid escalating tensions between the United States and Iran, the heightened risk associated with the Strait of Hormuz could trigger significant energy cost shocks across the domestic industrial sector, according to recent analysis. In particular, concerns have been raised that even short-term disruptions could push manufacturing production costs up by more than 11%, with the burden likely to spread rapidly, especially in energy-intensive industries such as refining and chemicals.

According to the report "U.S.-Iran Conflict and Hormuz Risk: Supply Chain Scenario Analysis and Implications" released by the Korea Institute for Industrial Economics & Trade (KIET) on March 19, under a short-term scenario where the Strait of Hormuz is blocked for about three weeks, international crude oil prices are expected to rise to between $105 and $125 per barrel, while LNG prices could surge by 60% to 90%. In this case, average production costs in the domestic manufacturing sector are estimated to increase by 5.4%.

The report notes that the shock could be much greater if the blockade is prolonged. In a scenario involving structural supply disruptions lasting more than three months, manufacturing production costs could soar by as much as 11.8%.

KIET expressed concern that the current crisis could evolve beyond a simple oil price spike into a "complex supply chain shock." Disruptions to crude oil and LNG production could simultaneously destabilize the supply of energy-linked raw materials such as naphtha, helium, and anhydrous ammonia.

Naphtha, a key feedstock in the petrochemical industry, if destabilized, could lead to disruptions in the production of base olefins such as ethylene and propylene. Helium, a byproduct of LNG processing, is essential for semiconductor manufacturing, so any disruption in LNG supply could translate directly into risks for semiconductor production. Anhydrous ammonia is a critical raw material for fertilizer production, meaning its supply issues could drive up agricultural costs as well.

KIET highlighted the vulnerability of Korea’s "Middle East-dependent energy and raw material structure." Korea is deeply connected to Middle Eastern supply chains not only for crude oil but also for key industrial raw materials, making the country’s industrial cost structure highly sensitive to energy crises.

In fact, the greater the proportion of energy input in an industry, the more severe the impact is expected to be. The coal and petroleum products sector could face production cost increases of up to 83%, while the electricity and gas sector could experience pressure for production cost increases of up to 77.7%.

The report characterizes the current situation not as a one-off shock, but as a recurring "structural risk," stressing the need to shift response strategies. It argues that, beyond simply diversifying energy import sources, Korea must also redesign its raw material procurement structures.

Furthermore, the report recommends moving away from managing energy and industrial raw materials separately and instead establishing integrated supply chain monitoring systems. The reasoning is that energy price shocks can simultaneously disrupt the supply of industrial materials, given the structural interlinkages. KIET warned, "If raw material procurement diversification is not integrated into energy transition policies, dependence structures may remain unchanged."

This content was produced with the assistance of AI translation services.