Aftermath of the Iran war, South Korea's manufacturing industry faces a crisis... Energy supply chains are disrupted.

There are concerns that the instability in the Middle East triggered by the Iran war could deal a serious blow to the domestic manufacturing industry. A study by the Export-Import Bank of Korea warns that the collapse of the energy supply chain may cause a sharp drop in the operating rates of petrochemical processes, which would then throw major industries—including semiconductors and automobiles—into disarray.

At present, the domestic refining industry is facing an operating crisis due to disruptions in crude oil imports and soaring transportation costs. In addition, petrochemical companies have already seen their profitability decline because of the supply surplus triggered by China, and now they also face the risk of shutting down due to impeded access to raw materials. Much of South Korea’s energy—such as crude oil, naphtha, and liquefied natural gas—depends on the Middle East, leaving its vulnerability fully exposed.

In particular, naphtha—often referred to as “industrial grain”—if its supply is interrupted, will disrupt the production of major chemicals such as ethylene and propylene, which in turn will trigger a chain reaction affecting the supply of synthetic resins and plastic products. Similarly, the automotive parts industry is also seeing manufacturing costs rise due to higher prices for plastic interior and exterior trim components, and it cannot rely on exchange-rate effects to offset this; the weakening of its export competitiveness is a cause for concern.

In the semiconductor sector, uncertainty in sourcing precision chemical materials threatens production schedules themselves. In construction, soaring prices of petrochemical construction materials could sap vitality at job sites, leading to price increases and a contraction in housing supply. Moreover, the agricultural sector may see reduced crop yields and higher production costs for farmers if fertilizer input materials are restricted, and the problem of “agricultural inflation” may become more prominent.

Under these circumstances, experts advise that the government and the private sector should work together to manage the supply-chain crisis and, in the long term, commit to strengthening energy security and improving the resilience of the industrial structure. What impact this trend will have on the Korean economy, and how it will develop thereafter, is drawing close attention.