"If Iran Directly Intervenes in the Israel-Palestine War, International Oil Prices Could Rise to $150"

Industrial Research Institute: Potential Oil Price Fluctuations Due to Israel-Palestine War and Its Impact on Domestic Industries and Implications

A national research institute has projected that if Iran directly intervenes in the Israel-Palestine war, international oil prices could rise to around $150 per barrel.

On the 8th, the Korea Institute for Industrial Economics & Trade (KIET) released a report titled "Potential Oil Price Fluctuations Due to the Israel-Palestine War and Its Impact on Domestic Industry and Implications."

According to the report, historically, wars in the Middle East have been one of the main causes of sharp increases in international oil prices. The Russia-Ukraine war that broke out last year caused oil prices to rise by 68% within four months.

The war between the Palestinian armed faction Hamas and Israel began on October 7. KIET presented forecasts based on three scenarios. First, if the war within the Gaza Strip ends, oil price fluctuations are expected to be limited. If the war locally expands to involve Lebanon and Syria, oil prices are expected to rise by more than $8. In the worst-case scenario, with full-scale war expansion and direct Iranian involvement, international oil prices are projected to reach around $150 per barrel. Previously, the World Bank also warned that if the Israel-Palestine war escalates, international oil prices could experience a shock comparable to the first oil shock of 1973, reaching between $140 and $157 per barrel.

KIET expressed concerns that rising oil prices would increase the cost of raw materials and intermediate goods imports, leading to deteriorating profitability for companies due to higher expenses.

Lee Sora, a senior researcher at KIET, explained, "Examining the correlation between oil prices and the increase rate of material costs by industry, a high correlation was found in industries with large material costs such as chemicals, petroleum refining, and primary metals." She added, "This suggests that the cost burden on Korean companies could significantly increase due to the shock of rising oil prices." She continued, "A rapid rise in oil prices could negatively impact domestic industries through profitability decline caused by cost increases and worsening terms of trade. Therefore, appropriate monitoring of oil price fluctuations, formulation of industrial policies focused on oil price-sensitive industries, and long-term government support for the development of alternative energy to reduce dependence on imported energy are necessary."