The energy situation is urgent, and South Korean President Lee Jae-myung is worried and "can't sleep." The stock market has evaporated 84 trillion won in nearly a month! A large number of used cars in Japan are also stranded at sea.

Ask AI · How the Middle East conflict is exacerbating South Korea’s energy security crisis?

Both the Strait of Mannar and the Strait of Hormuz are key global energy shipping lanes. As the Middle East conflict continues and April approaches, market sentiment has begun to shift. Investors are gradually realizing that this is not a short-term conflict, and that oil prices may stay at elevated levels for a longer period. Analysts warn that the impact of this conflict on the oil market is continuously expanding. If it persists for another several weeks, even if conditions ease afterward, supply restoration may not be able to catch up in time, and global crude oil inventories could be depleted significantly.

On March 31, the South Korean government announced that, effective immediately, it would lend strategic reserve crude oil to companies that need it, to ensure stable supplies for upstream firms such as refineries. Just one day earlier, President Lee Jae-myung warned that the current energy situation could be more severe than expected, saying he “can’t sleep at night” because of it.

According to a report by Yonhap News Agency citing information from South Korea’s Ministry of Trade, Industry and Energy, within the next two months, refineries and other enterprises with demand may borrow crude oil from the government. The crude oil to be lent comes from South Korea’s strategic reserves and is mainly produced in the Middle East. These companies will repay the government later after obtaining crude oil through other channels. The South Korean government hopes that this will ensure refineries can operate stably and will delay the release of strategic petroleum reserves.

An official from South Korea’s Ministry of Trade, Industry and Energy said at a news briefing that day that four companies have already submitted applications in total, seeking to borrow 20 million barrels of crude oil. The South Korean government decided that later that evening it would first approve one company’s application and lend it 2 million barrels of crude oil. According to the report, South Korean companies are currently planning to obtain crude oil from producing regions such as Africa, Central Asia, the Americas, and Australia.

On March 30, Lee Jae-myung, at a government meeting on Jeju Island, stressed the need to transition to renewable energy as quickly as possible. He said: “Because of energy issues, the whole world has fallen into chaos—things are so serious that I can’t sleep at night.”

According to a Yonhap News Agency report citing information from the Korea Exchange on March 31, affected by the U.S.-Israel war with Iran, the total market value of South Korea’s listed companies has evaporated by about 84 quadrillion won (roughly 3.8 trillion yuan) over nearly one month.

At the cabinet meeting on the same day, Lee Jae-myung said that because South Korea’s energy imports account for a high share, it is necessary to respond to the current energy situation “to the maximum extent” in a timely and forceful manner, and to consider taking emergency fiscal measures to address it. He also said he is willing to dispatch a special envoy to the Middle East region for this purpose.

Korean officials attending that day’s cabinet meeting said that South Korea currently has stable supplies of natural gas, naphtha, and urea. These oil-related inputs are used to produce fertilizers and to keep diesel engine locomotives running, among other uses. According to Reuters, due to the blockade of the Strait of Hormuz, 26 ships are currently stuck in the Persian Gulf. The South Korean government is negotiating with countries in the Middle East to find alternative routes for transporting energy.

The report said that to cushion the impact of the energy crisis on consumers and across industries, the South Korean government is preparing to add to the fiscal budget. If approved by the National Assembly, additional fiscal spending will be carried out in April.

South Korea is highly dependent on imports for energy, with about 70% of its oil and about 20% of its liquefied natural gas coming from the Middle East. Military strikes against Iran by the United States and Israel starting February 28 have affected global energy supply, causing energy prices to surge. On March 5, the South Korean government issued a Level 1 alert for a resource security crisis, and nearly two weeks later raised it to Level 2. On March 29, South Korea’s Deputy Prime Minister and Minister of Planning and Finance, Goo Ryoon-cheol, said that if international crude oil prices rise further to between $120 and $130 per barrel, the government is very likely to upgrade the resource security crisis alert to the third level. This alert mechanism’s highest level is Level 4.

To address shortages in energy supply, South Korea began implementing vehicle license-plate number restrictions for motor vehicles in public departments and institutions starting March 25, with electric vehicles and hydrogen-energy vehicles exempted. Goo Ryoon-cheol said that if the alert level is raised to Level 3, the license-plate number restriction measures will be expanded to private vehicles. The South Korean government has urged the public to cooperate voluntarily with the license-plate number restriction measures, which are currently not enforced as mandatory.

In addition, the disruption to shipping through the Strait of Hormuz has also directly affected global logistics chains that rely on transshipment through multiple ports in the UAE, putting the used-car trade in several countries on hold. Umar Ali is a used-car dealer in Sri Lanka, and most of the used cars he sells come from Japan. Compared with the UAE, Sri Lanka is closer to Japan, but under normal circumstances, Japan’s used cars are usually first shipped to the UAE. They use Dubai’s mature transshipment trade networks and logistics infrastructure to complete procedures such as customs clearance and certification, and then are transshipped to Europe, Africa, and other final destinations in Asia. Ali said that due to the disruption of shipping through the Strait of Hormuz, a large number of Japan’s used cars that have already been shipped are currently stranded at sea.

Also affected are South Korea’s used cars. At Incheon Port—the country’s largest used-car export hub—there is now vehicle congestion, including vehicles that have already been sold. A spokesperson from the Korea Used Car Exporters Association said that usually from March to September each year is the peak season for used-car exports, but currently, the sales channels for shipments from South Korea via Dubai to the Europe region have basically been paralyzed. Some orders shipped in January still have not been delivered. Some used cars have found nearby countries’ ports to unload, but others can only return to South Korea. Data show that last year South Korea exported 883k used cars, with more than one-third sold to the Middle East.

Editor | Cheng Peng, Du Hengfeng

Proofreader | Chen Keming

Cover image source: AI-generated

Daily Economic News, compiled from CCTV Finance and Xinhua News Agency

Daily Economic News