The spot price of Dubai crude rose to $89.41 per barrel on the 22nd. That is a 38.8% increase from June 25, when the United States and Iran attacked each other for the first time after signing a memorandum of understanding (MOU) to end the war, at $64.39. Korea relies on the Middle East for 70% of its crude oil imports, so it is directly affected by the price of Dubai crude.
If high oil prices persist, there are concerns that this year's consumer price inflation could exceed not only the Bank of Korea's target (2%) but also the government's outlook (2.6%). The June consumer price inflation rate (3.2%) already hit a record high for the first time in two years and six months. If prices keep rising like this, the likelihood that the Bank of Korea will further raise the base rate also increases.
◇ Dubai crude up 38.8% on Middle East flare-up, "as high as $120 forecast"
There are also projections that the price of Dubai crude could soar to $100–$120, levels seen when the Middle East war was at its peak. Recently, the Houthi rebels, an armed group in Yemen supported by Iran, sent warning emails to global shipping companies saying they would blockade the Red Sea of Saudi Arabia. There is a possibility that the Bab el-Mandeb Strait, the route that sends oil from Saudi Arabia, the country from which Korea imports the most crude, to Asia, could be blockaded. In June, an average of 7.4 million barrels of oil per day passed through this strait. That is about 7% of global oil production.
Brent crude, the benchmark for international oil prices, also rose 25% in price, from $75.26 per barrel at the end of June to $94.04 recently.
◇ KDI: "If Dubai crude hovers around $90, inflation could break 3%"
When international oil prices rise, domestic producer prices and then consumer prices increase in sequence with a lag of around two months. Looking at the June consumer prices, which reflect the impact of the Middle East war, industrial products, which include petroleum products, recorded the highest gain among the four categories at 4.4%. Gasoline rose 23.1% and diesel 33.7%, respectively.
Korea Development Institute (KDI) analyzed that if Dubai crude records $90 in the third quarter and $87 in the fourth, the annual consumer price inflation rate would rise by 1.2 percentage points. Since first-half consumer price inflation was 2.5%, it cannot be ruled out that it could break 3% in the second half. An analysis of the outlook the government released on the 14th shows that Dubai crude would need to stay at $78 in the second half for consumer price inflation to be 2.7%.
If prices rise, there is an outlook that the Bank of Korea is likely to raise the base rate in August following July. Cho Yong-gu, a researcher at Shinyoung Securities, said, "If international oil prices rise, it is not good for prices and domestic demand, so opinion could tilt toward a rate hike in August," adding, "Prices in July will fall from the previous month, but it will be hard to interpret that as a shift to a downtrend."