With military tensions between the United States and Iran rising, domestic refiners are worried they may face disruptions in crude oil imports. If Iran blocks the Strait of Hormuz due to a clash with the United States, crude shipments would be halted and oil prices would surge.
According to the refining industry on the 25th, domestic refiners have recently been reviewing multiple scenarios on the assumption of a Strait of Hormuz blockade. If the Strait of Hormuz is closed, they must quickly find alternative routes or increase crude imports from other oil producers. However, considering logistics infrastructure and expense, they see it as difficult to prepare alternatives in the short term.
The Strait of Hormuz, located between Iran, the United Arab Emirates (UAE), and Oman, is a key maritime route for global shipping companies. Twenty-five percent of the crude oil and 20% of the liquefied natural gas (LNG) traded worldwide pass through this strait. Most Middle Eastern crude, including from Saudi Arabia and Kuwait, is exported via the Strait of Hormuz.
Recently, U.S. President Donald Trump has warned that he could carry out a military strike if Iran does not abandon its nuclear weapons development. In response, Iran said it would close the Strait of Hormuz if the United States takes military action. It is seen as an attempt to pressure the United States in reverse by holding one of the world's most important maritime crude oil routes.
In fact, on the 17th, when Iran was holding nuclear talks with the United States in Geneva, Switzerland, it closed part of the Strait of Hormuz and conducted military drills. In the two previous rounds of nuclear talks, the two countries failed to narrow their differences, and a third round is set for the 26th.
While keeping an eye on the third round of nuclear talks, the refining industry still sees the likelihood of an actual blockade of the Strait of Hormuz as low. The reasoning is that although Iran has brandished the Hormuz blockade card during past Middle East crises, it has never carried it out.
A refining industry official said, "So far, there has never been an actual problem in the Strait of Hormuz that disrupted tanker operations," and added, "Even if an issue arises, Korea has crude reserves sufficient for about seven months."
However, refiners expect that international oil prices could surge as military tensions in the Middle East grow.
If oil prices rise gradually, refiners see improved earnings as inventory valuation gains increase due to a rise in the asset value of crude they already hold. But if prices spike suddenly, demand for petroleum products contracts, refining margins decline, and earnings deteriorate. The refining margin is a key indicator of refiner profitability and is the price of petroleum products minus various expense.
On the day, front-month Brent futures settled at $71.04 per Barrel, and front-month West Texas Intermediate (WTI) futures settled at $65.92 per Barrel. That is the highest level in six months.