Strait of Hormuz Set to Reopen Soon... Mixed Outlook Across Industries

Oil Prices Plunge on U.S.-Iran Peace Agreement


Aviation, Automotive, and Home Appliance Sectors Poised to Benefit

Supply Chain Stabilization and Demand Recovery Expected


Refining and Petrochemicals: Supply Stabilization in Foc

With the United States and Iran reaching an agreement on an end-of-war negotiation, the Korean industry has begun taking follow-up measures. Companies are working to normalize their emergency management systems, while also busy calculating the sector-by-sector gains and losses.

According to the industry on June 16, the two countries are scheduled to sign a memorandum of understanding (MOU) to end the war in Geneva, Switzerland, on June 19. With the cessation of hostilities, the U.S. maritime blockade of Iran will be lifted, and the Strait of Hormuz will reopen.

International oil prices are also stabilizing rapidly. On June 14 (local time), Brent crude fell 3.9% to $84 per barrel, while West Texas Intermediate (WTI) dropped 4.8% to $81 per barrel.

Hundreds of Billions Saved on Lower Oil Prices... Aviation Industry Expected to Benefit

The aviation industry is considered the biggest beneficiary. Jet fuel accounts for about 30% of airline operating costs. If international oil prices stabilize after the end of the war, fuel costs will decrease and fuel surcharges could also be reduced. Korean Air and Asiana Airlines are expected to save hundreds of billions of won annually if oil prices fall by 10%.

However, the industry remains cautious. An aviation industry official said, "Just because the war is over, it does not mean oil prices and exchange rates will immediately return to normal," adding, "It will also take considerable time to restore Middle Eastern facilities and normalize supply chains."

The shipping industry is also optimistic. Ship operations, which had been suspended due to the closure of the Strait of Hormuz, are expected to resume, and the burden of sharply increased marine insurance premiums during the war is likely to ease. However, follow-up actions such as nuclear negotiations to be held over the next 60 days, mine clearance, and route safety inspections remain, so it is expected to take some time before things return to normal.

Among the Korean vessels trapped in the Strait of Hormuz after the Middle East war, HMM's ultra-large crude oil carrier (VLCC) "Universal Winner," the first to exit the strait, arrived in the waters off Ulsan on the 10th for crude oil unloading and is approaching the offshore crude oil unloading facility buoy. Photo by Yonhap News

Benefits from Supply Chain Normalization for Home Appliances and Automobiles

The home appliance and automobile industries are expecting to benefit from supply chain normalization. Samsung Electronics and LG Electronics, for example, had rerouted their shipments to avoid the Middle East during the war, but are now considering returning to their original routes after the end of the war. If logistics bottlenecks are resolved, not only will lead times and logistics costs be reduced, but companies can also expect to expand marketing efforts as Middle Eastern consumer markets, which shrank during the war, begin to recover.

The automotive industry is expected to benefit indirectly. In an interview with foreign media, Jose Munoz, President and CEO of Hyundai Motor Company, stated that the rerouting via the Cape of Good Hope significantly increased procurement times. If the routes return to normal, the additional logistics cost per vessel—over $1 million (about 1.5 billion won)—will be eliminated, and production costs will also be reduced due to stabilized prices of petrochemical-based materials.

Tire manufacturers such as Hankook Tire and Kumho Tire, which use large quantities of oil-linked raw materials like synthetic rubber, are also cited as beneficiaries from reduced raw material costs.

Lotte Chemical Daesan Plant. Lotte Chemical

Complex Calculations for the Refining and Petrochemical Industries

Korean refiners, which were hit hard immediately after the outbreak of the Middle East war due to the closure of the Strait of Hormuz, are expected to find relief from crude oil supply shortages. However, the situation is complex. While the normalization of crude supply is clearly positive, there is a possibility of inventory valuation losses in the short term due to falling oil prices. If international oil prices decline, the value of inventory purchased at higher prices could drop, resulting in a lagging effect that may burden second-quarter results.

The industry is focusing more on the mid- to long-term effects than on short-term performance. They believe that stabilizing supply chains and resolving uncertainties in crude oil supply could improve refining margins and restore profitability.

Meanwhile, attention is also being drawn to the criteria for compensating losses under the petroleum product price ceiling, which could be announced as early as this week. The industry claims that total losses, including opportunity costs, have exceeded 4 trillion won, but the government is reportedly planning to exclude opportunity costs from the compensation criteria, which is expected to lead to conflict.

The petrochemical industry is also torn between expectations and concerns. Companies like Lotte Chemical and LG Chem have already resolved much of their raw material procurement issues through supply chain diversification, so they expect some relief from the normalization of supply. However, there are also considerable concerns that if the supply of Iranian crude oil resumes, Chinese petrochemical companies could gain a cost advantage, leading to a deepening global oversupply.

An industry official said, "What companies are looking forward to is not just the end of the war, but normalization," adding, "It will take considerable time for supply and logistics networks to recover to pre-war levels."

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