Oil, Exchange Rate, and Freight 'Triple Shock'... Will the Manufacturing Cost Baseline Collapse? [US-Iran War]

Most Oil Tankers and Other Vessels Near the Strait of Hormuz Halt Operations and Wait on Standby
69% of Last Year’s Crude Oil Imports Came from the Middle East

Refining Industry Secures Three Months of Inventory
Immediate Hit Unavoidabl

The sudden escalation of military conflict between the United States and Iran has rapidly deteriorated the situation in the Middle East, resulting in a 'triple shock' for domestic industries as international oil prices, exchange rates, and logistics costs have all surged simultaneously. With the so-called 'perfect storm from the Middle East' emerging as a major negative factor for the previously recovering export sector, concerns are rising that the cost baseline across Korea’s manufacturing industry-a mainstay of the national economy-could collapse. In particular, the petrochemical industry, which was already struggling due to sluggish market conditions, has been hit directly by rising raw material costs. The airline industry, which is highly sensitive to oil price fluctuations, is also facing a sharp increase in expenses. With the possibility of the Strait of Hormuz being blocked now being discussed, a 'cost shock' across industries appears inevitable, given that Korea relies on the Middle East for 70% of its crude oil imports.

On the 3rd, as the domestic stock market opened lower due to the aftermath of the Middle East situation, an employee at the dealing room of Hana Bank’s Seoul headquarters monitors the stock market and exchange rates. On this day, the KOSPI opened at 6,165.15, down 78.98 points (1.26%) from the previous session, and the KOSDAQ opened at 1,169.82, down 22.96 points (1.92%). The won/dollar exchange rate started the session up 22.6 won to 1,462.3 won. March 3, 2026 Photo by Cho Yongjun

According to the Ministry of Trade, Industry and Energy on March 3, most vessels, including oil tankers that were about to enter the Strait of Hormuz, are currently waiting in nearby waters with operations halted. A ministry official told The Asia Business Daily, "Most vessels, including oil tankers about to enter the Strait of Hormuz, are waiting in safe locations," adding that "we are watching the situation to decide whether to resume operations based on local developments." As oil tankers have been stranded, the supply chain has tightened, causing the profitability of the refinery and petrochemical sectors-which rely on imported energy and raw materials-to deteriorate rapidly.

If the Strait of Hormuz is blocked, supply disruptions and sharp price increases are unavoidable. Last year, 69.1% of Korea’s crude oil imports came from the Middle East, and 95% of that was transported through the Strait of Hormuz.

The refining industry has secured about three months’ worth of inventory, and there are currently no Korean oil tankers passing through the strait. However, if the blockade is prolonged, further countermeasures will be considered. Iran’s drone attacks have halted operations at Saudi Arabian refining facilities and Qatari liquefied natural gas (LNG) plants, while the possibility of OPEC+ (which includes both OPEC members and non-member countries) increasing production in April remains a variable.

The petrochemical sector is expected to take an immediate hit. Rising oil prices are pushing up the cost of key feedstocks such as naphtha, raising concerns over declining refining margins. Hyunryeol Cho, an analyst at Samsung Securities, said, "Logistics related to fossil energy are expected to drop sharply," and predicted, "Given the petrochemical industry’s need for feedstocks beyond just naphtha, profits will likely fall compared to before, or remain sluggish (with short-term spot spreads staying weak)."

If higher raw material costs are battering the already weakened petrochemical sector, the airline industry-which is directly exposed to international oil prices-now faces a fixed-cost crisis and is being pushed to the brink. Jet fuel makes up about 30% of airline operating expenses and is linked to oil prices. On March 2 (local time), Brent crude futures surged 13% during trading to surpass $82 per barrel, intensifying cost pressures.

The problem is that it is difficult for airlines to pass on soaring fuel costs to passengers. Fuel surcharges are calculated based on the average oil price of the previous month, making it hard to immediately reflect sudden increases. Additionally, with persistent high inflation, airlines are reluctant to keep raising surcharges due to concerns over dampening consumer sentiment.

Kim Youngbae, the ruling party secretary of the National Assembly Foreign Affairs and Unification Committee, is speaking at the Democratic Party-Ministry of Foreign Affairs working-level meeting related to the Iran situation held at the National Assembly Members' Office Building on March 3, 2026. Photo by Hyunmin Kim

While large companies struggle, small and medium-sized suppliers that lack the ability to pass on higher costs are increasingly at risk of falling into a 'loss trap,' where the more they produce, the more they lose money. Profitability is expected to deteriorate particularly among small and midsize suppliers in the steel and auto parts industries. The Korea International Trade Association analyzed that a 10% increase in oil prices leads to a 0.39% decrease in exports, a 2.68% increase in imports, and a 0.38% rise in corporate production costs. If the surge in raw material prices is not quickly reflected in supply prices, this could weaken investment among small suppliers.

Rising logistics costs are also a concern. If vessels are forced to take alternative routes due to a blockade of the Strait of Hormuz, shipping costs could increase by as much as 50-80% compared to the existing routes. It is also expected that transport times could be extended by three to five days due to overland transport and customs procedures. In the past, insurance premiums for this region have increased as much as sevenfold. In fact, the Shanghai Containerized Freight Index (SCFI) rose by 81.65 points, from 1,251.46 on February 13 to 1,333.11 on February 27. Since the US airstrike on Iran occurred on February 28, the index is likely to climb even higher.

Experts stress that, because rising oil prices push up production costs across all industries, a comprehensive government-wide response is needed to prepare for a prolonged crisis.

Kang Sungjin, professor of economics at Korea University, said, "When oil prices rise, all production costs go up. While the impact may differ by industry, virtually all companies are affected. The government should use various diplomatic channels to manage oil reserves and exchange rate risks, share information with companies, and play a role in easing market anxiety." Taehwang Kim, professor of international trade at Myongji University, added, "This situation has created negative effects such as increased production costs for the domestic heavy and chemical industries, which have a high share of oil consumption, and higher production costs for industries heavily reliant on raw material imports. Disruptions to logistics via the Suez Canal in the Red Sea are also unavoidable, so countermeasures are needed."

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