As military tensions between the United States and Iran rise, Korea's refiners worry they could face disruptions in crude oil imports. If Iran blocks the Strait of Hormuz due to a clash with the U.S., crude shipments would be halted and oil prices would surge.
On the 25th, according to the refining industry, domestic refiners have recently been reviewing multiple scenarios assuming a blockade of the Strait of Hormuz. If the strait is closed, they must quickly find alternative routes or increase crude imports from other oil-producing countries. However, considering logistics infrastructure and expense, they believe it will be 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 transacted worldwide and 20% of liquefied natural gas (LNG) pass through the 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 hold one of the world's most important maritime crude routes and pressure the United States in return.
In fact, on the 17th, while conducting nuclear talks with the United States in Geneva, Switzerland, Iran closed part of the Strait of Hormuz and carried out military drills. In the two earlier rounds of nuclear talks, the two countries failed to narrow their differences, and a third round is set for the 26th.
The refining industry is watching the third round of nuclear talks but still sees the likelihood of an actual blockade of the Strait of Hormuz as low. The reason is that, in past Middle East crises, Iran repeatedly played the blockade card but 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," adding, "Even if a problem arises, there is a crude stockpile sufficient for about seven months in Korea."
Still, refiners expect that as military tensions in the Middle East rise, international oil prices could jump.
When oil prices rise, petroleum product prices also go up. If refiners process previously secured crude into petroleum products during a price upswing, they can sell at higher prices. As the margin (selling price − feedstock cost) widens compared with when the crude was purchased, inventory valuation gains appear.
However, if oil prices spike suddenly, demand for petroleum products may contract, refining margins fall, and results worsen. The refining margin is a key indicator of a refiner's profitability and is the value obtained by subtracting various expense items from the selling price of petroleum products.
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.