As Iran reclosed the Strait of Hormuz after temporarily opening it following the cease-fire with the United States, a presidential research institute proposed that Korea should push actively to import crude oil from nearby Russia or Iran. Korea relies on the Middle East for 70% of its crude oil, and the idea is to speed up diversification of supply in the wake of the Middle East war. In particular, a plan was reported to grant tax benefits to corporations that retrofit facilities to refine light crude such as U.S. West Texas Intermediate (WTI).
◇Urgent need to diversify supply… watching for Western sanctions as Russian crude considered
President Lee Jae-myung presided over the first plenary session of the National Economic Advisory Council (Vice Chair Kim Sung-sik) at Cheong Wa Dae on the 9th and said, "I reviewed the materials the council prepared in advance, and the content is very thorough and includes many items that our administration could actually adopt as policy, which was a great help," adding, "Please present fully without omitting content."
At the meeting, Park Won-joo, head of the council's growth economy subcommittee, proposed short-term measures including ▲ urgently securing Russian and Iranian crude oil and LNG (liquefied natural gas) ▲ importing as much Chinese and Russian naphtha as possible ▲ maximizing operation of nuclear power plants and extending the operation of plants at the end of their lifespans ▲ temporarily making public transportation free.
Because most Russian crude is heavy, it is suitable for refining with current domestic facilities. Given the distance, expenses such as transport costs fall sharply compared with the Middle East. Although the international community imposed sanctions on Russia after the Russia-Ukraine war, the United States last month temporarily allowed transactions of Russian crude and petroleum products as a response to high oil prices. A domestic corporation recently imported Russian naphtha, but there have been no cases of securing crude oil yet. It could pose a burden for corporations because it may become an issue when exporting later to European Union (EU) countries.
In this regard, the council proposed establishing a line of "alliance is principle, energy is exception." Park said, "We need to change our stance on energy," adding, "In 1973, we were one with the West but issued a pro-Arab statement, and Japan also continued efforts to secure the Sakhalin gas field while maintaining alliance and cooperation. Even within alliances, we should carve out practical exceptions for energy."
◇"Facilities should be improved to refine light crude" tax benefits mentioned
There was also a proposal to grant a temporary investment tax credit when refineries retrofit facilities to process non-Middle Eastern crude. Typically, the crude Korea mainly imports is heavy, and refining facilities are also tuned to heavy crude refining. Even if imported, crude from countries producing light crude, such as the United States, is quite complex to process. Park said, "Indonesia, Malaysia, Vietnam and Australia are routes that completely bypass Hormuz," adding, "We should pay attention to securing crude from these places."
Earlier, President Donald Trump said on the 1st (local time), marking one month since the start of the war, that the military operation was nearing its final phase and added, "Countries that need fuel should buy oil from the United States." Korea's reliance on U.S. crude is around 16%. It is farther than the Middle East, and it does not fit with Korea's industry structure centered on heavy crude. Still, as President Lee puts weight on "diversifying energy supply," some say that in the long term, facility retrofitting should be considered.
The National Economic Advisory Council is a presidential body established under Article 93 of the Constitution, chaired by President Lee. The vice chair is former lawmaker Kim Sung-sik. On Dec. 29 last year, President Lee, in line with the aim of "integration," named Kim, a politician from the conservative camp, as vice chair.