Hormuz Blockade Could Push South Korea's Manufacturing Costs Up to 11.8%
A South Korean research institute warns that a prolonged blockade of the Strait of Hormuz could trigger large-scale shocks across Korea’s economy, with manufacturing costs rising by as much as 11.8% under its worst-case scenario. The study was produced amid tensions surrounding potential U.S. and Israeli actions against Iran.
The Korea Institute for Industrial Economics and Trade (KIET) analyzed the economic impact of a Hormuz disruption using the Bank of Korea’s 2023 extended input-output tables. It notes that the Strait of Hormuz is a global energy choke point, through which about 27% of the world’s crude oil and 22% of LNG pass. The researchers outline price trajectories under three disruption durations and a possible extreme scenario.
For a disruption lasting three weeks, crude oil prices are projected at $105–$125 per barrel and LNG prices could rise by 60–90%. If the blockade lasts 1–3 months, oil could move to $120–$160 and LNG could jump by 100–140%. A blockade extending beyond three months could push oil to $150–$180 and LNG up by 150–200%, with a severe, extreme scenario potentially sending oil above $200 per barrel.
Korea, a major importer of oil and LNG, would face significant pressure on energy-intensive sectors such as power generation, city gas supply, and refining, with broad spillovers to manufacturing and the wider economy. The report emphasizes that prolonged disruption would reverberate through Korea’s industrial supply chains and trade.
Based on the Bank of Korea’s industrial input-output model, the study estimates that if the blockade ends within three weeks, Korea’s overall industrial production costs would rise about 4.2%, with manufacturing costs up 5.4% and services costs up 1.4%. If the disruption lasts three months or longer, the average increase could reach 9.4%, with manufacturing costs up 11.8% and services up 3.1%.
Sector-by-sector, the energy-related cost increases would be the largest. Coal and petroleum product production costs could rise about 38.5% in the short disruption, 60.4% in the 1–3 month window, and 83.0% in a long stoppage. Electricity, gas, and steam production costs are projected to rise 33.4%, 53.36%, and 77.71% respectively across the same timelines.
Other sectors show more moderate but still meaningful impacts. Chemical production costs could increase by about 14.84% in a long disruption, non-metallic mineral products by 12.09%, primary metals by 8.92%, transport services by 8.92%, mining by 8.45%, and wood, paper, and printing by 7.42%.
The report notes that the direct cost shocks for Korea’s core exports—semiconductors and automobiles—appear comparatively smaller in this analysis, which only accounts for direct energy-input effects. It cautions that if key raw materials face supply shortfalls, the total industry impact could be larger.
Researchers also point to Korea’s reliance on energy and manufacturing supply chains linked to the Middle East, including some industrial gases and chemicals tied to petrochemical processes. They call for diversified energy and material sourcing and for integrated monitoring across ministries to manage the risk and respond to reconstruction or investment opportunities if tensions ease.
For U.S. readers, the study highlights how a disruption of Hormuz could swiftly affect global energy markets, fueling higher oil and LNG prices and cascading into inflation and manufacturing costs worldwide. It underscores the importance of energy diversification, resilient supply chains, and strategic planning for electronics, automotive, and other energy-intensive sectors in the United States. Contextually, KIET’s analysis relies on Korea’s industrial data and energy-price links to the global market, illustrating how regional conflicts can ripple through global markets and future policy choices.