KITA Warns of 80% Surge in Logistics Costs if Strait of Hormuz Is Blocked

KITA Holds Emergency Logistics Inspection... Support Measures for SMEs Announced
Uncertainty Over 'Hormuz Detour Routes' Amid Escalating Middle East Conflict

It has been assessed that if the Strait of Hormuz, the world's largest oil shipping lane, is blocked, there will be severe disruptions in logistics, including energy supply instability and a surge in maritime freight rates by up to 80%.

On March 1, the Korea International Trade Association announced these findings at an "Emergency Export-Import Logistics Inspection Meeting Related to the US-Iran Situation" held at the Trade Tower in Samseong-dong, Seoul, presided over by Chairman Yoon Jinshik. The meeting was convened to assess potential risks to Korea's export and import logistics, prompted by the rapidly evolving Middle East situation, including Iran’s missile attacks targeting US military bases in neighboring countries.

The Strait of Hormuz is a strategic chokepoint through which approximately 27% of global maritime oil trade passes. Korea relies on the Middle East for 70.7% of its crude oil and 20.4% of its liquefied natural gas (LNG), making energy supply disruptions inevitable if the strait is closed. According to the Institute for International Trade, a 10% increase in oil prices would raise domestic companies' costs by 0.38% and decrease exports by 0.39%.

Significant logistical damages are also anticipated. If the strait is blocked and detours must be used, maritime freight rates are expected to rise by 50% to 80% compared to current levels, and transport times will increase by about 3 to 5 days. During previous regional conflicts, insurance premiums increased by up to sevenfold, raising concerns about heavier cost burdens for cargo owners. However, as it is currently difficult to guarantee the safety of neighboring countries’ airspace and land routes, the practical viability of detour routes remains uncertain.

However, the analysis indicates that the direct impact on exports will be relatively limited. Korea’s export share to the seven countries bordering the Strait of Hormuz stands at 1.9% (13.68 billion dollars), and since shipping companies have already been regularly rerouting via the Cape of Good Hope instead of the Suez Canal since the end of 2023, the likelihood of further disruptions is regarded as low.

In preparation for a prolonged crisis, the association plans to support small and medium-sized exporters that are expected to incur damages. It will provide real-time information on detour routes utilizing the ports of Salalah and Duqm in Oman, and share logistics trends in cooperation with domestic shipping companies and forwarders. Additionally, to alleviate the burden of rising logistics costs, the association will request the inclusion of emergency items in logistics voucher programs and work to secure dedicated shipping space for small and medium-sized enterprises.