[Weekend Money] After Hormuz, This Route Is Also Blocked... What Will Happen to Oil Prices?

With the Red Sea now blocked by attacks from Yemen's Houthi rebels following the closure of the Strait of Hormuz, concerns are growing among Asian countries, including Korea, about the burden of rising shipping costs and higher oil prices. While record-high oil prices are already expected for next year, some forecasts suggest this could happen even sooner.

On July 23, two oil tankers registered in Saudi Arabia were attacked in the Red Sea. Previously, Yemen's Houthi rebels (who are pro-Iranian) declared that they would impose a maritime blockade on Saudi Arabia in retaliation for a Saudi attack on Sana'a Airport in Yemen. As this blockade has started to materialize, some ships have already begun to turn back.

This situation inevitably translates into increased shipping cost burdens for Asian countries such as Korea, Japan, China, and India. Jin Young Choi, a researcher at Daishin Securities, explained, "Saudi Arabia has bypassed the Strait of Hormuz via the East-West pipeline (from the Abqaiq oil field to Yanbu Port). Of the 4.19 million barrels (as of June) rerouted this way, about 3.5 million barrels are sent to Asia via the Bab el-Mandeb Strait," adding, "If exports are forced to go through the Suez Canal and around the Cape of Good Hope, it would take around four additional weeks of shipping time. This will sharply increase cost pressures."

Sungki Hong, a researcher at LS Securities, noted, "Previously, oil shipments through the Bab el-Mandeb Strait were about 4 million barrels, but due to the blockade of the Strait of Hormuz and the activation of Saudi Arabia's alternative pipelines, transit volume reached 9 million barrels in the second quarter." He continued, "There is an alternative transport route through the Suez Canal, but its safety is not guaranteed, and given that the daily maximum capacity was 7.5 million barrels in 2023, there are likely to be limits to additional transport. A significant increase in shipping distances to Asia is inevitable, which will result in even faster depletion of available inventories."

The key issue is whether the Middle Eastern supply chain crisis will be prolonged. Researcher Choi pointed out, "Oil prices have been capped by demand-suppression measures in Asian countries (such as odd-even car rationing, private vehicle restrictions, remote work, etc.) and by 410 million barrels of strategic petroleum reserves (SPR). However, demand cannot be permanently suppressed, and the strategic reserve release effects will end after July." While the International Energy Agency (IEA) stressed that more than 1 billion barrels remain in reserve, if the blockades of the Strait of Hormuz and the Bab el-Mandeb Strait persist, these measures can only provide temporary relief. Choi added, "OECD oil inventories have plummeted to their lowest levels since 2014, which ironically only heightens market anxiety."

It's not just the Middle East posing problems—Russia, the world's second-largest oil producer, is also a concern. Since late April, harsh attacks from Ukrainian forces have forced 10 major Russian refineries to halt operations, bringing gasoline output down to just 65% of average seasonal demand.

The rise in oil prices is now expected to become even steeper than initially projected. Choi said, "If the effects of liquidity start to take hold belatedly, record-high oil prices could be reached earlier than previously expected (the initial forecast was for the 2027 WTI price annual average to reach $130 per barrel). I maintain the perspective that prices will trend upward until at least the end of next year."

Researcher Hong commented, "Although it has received less attention due to the Iran war, reductions in output and petroleum exports from Russia and Kazakhstan are also major contributors to supply disruptions. If the worst-case scenario persists, the world could face a full-scale oil shortage, inventory drawdowns could accelerate, and oil prices will likely rise even more sharply than the previous monthly average increase of $5–$10 per barrel."

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