70% of crude oil comes from the Middle East! With the Strait of Hormuz "blocked," South Korea enters "crisis mode"

The ongoing conflict in the Middle East has prompted South Korea to fully escalate its economic response to crisis level.

On Wednesday, March 24, South Korean Prime Minister Kim Min-seok warned that South Korea must strengthen its proactive and comprehensive response mechanisms to prepare for the worst-case scenario. He stated:

Given that the situation may be prolonged, it is necessary to further strengthen whole-of-government preventive measures, including those addressing the worst-case scenario. The government will respond as quickly as possible depending on the severity of the situation.

At the institutional level, the South Korean government will establish an interdepartmental "Emergency Economic Task Force" led by the Prime Minister, which will hold two meetings per week initially. Meanwhile, the Presidential Office will also independently set up a special research center focused on the emergency economic situation, creating a dual-track coordinating structure.

Kim Jong-un also urged the swift passage of a supplementary budget, saying it is “not a choice but a necessity” to protect the economy from risks.

Previously, the South Korean government and the ruling party had reached a consensus on a supplementary budget of about 25 trillion won (approximately $16.7 billion) to buffer the impact of rising energy costs by fiscal means and stabilize supply chains.

The government and ruling party reached consensus on the additional budget plan last Sunday.

The budget, approximately 25 trillion won, will be funded through tax revenue, not new government bonds, in order to avoid upward pressure on bond yields. Key fiscal support is expected to focus on buffering the impact of high energy costs on households and businesses, supporting vulnerable groups, and stabilizing supply chains.

President Lee Jae-myung had already asked his team earlier this month to accelerate drafting the budget plan, and official details are expected to be announced soon.

Citigroup economist Jin-Wook Kim estimates that the 25 trillion won plan amounts to about 0.88% of South Korea’s GDP, potentially boosting economic growth by 0.18 to 0.35 percentage points over the next four quarters.

However, before the announcement of the supplementary budget, Citigroup had already revised down its 2026 economic growth forecast for South Korea by 0.1 percentage points to 2.2%.

Economists point out that while this stimulus measure may provide moderate support for growth, it could also further increase inflation risks in the current volatile environment.

In addition to the supplementary budget, the South Korean government has introduced numerous emergency measures since the turmoil in Iran, including imposing a fuel price cap for the first time in nearly three decades to curb inflationary pressures caused by surging oil and gas prices.

According to Citigroup data, in the absence of policy interventions, wholesale gasoline prices may spike significantly, rising from about 1,723 won per liter in early March to about 2,050 won by late March. Citigroup expects the government may further cut fuel taxes to mitigate the impact.

About 70% of South Korea’s crude oil imports come from the Middle East, making its economy particularly sensitive to sustained supply disruptions.

If supply shocks persist, their impact will ripple upstream along the industrial supply chain, affecting industrial raw materials such as naphtha and urea, thereby increasing production costs, weakening export competitiveness, and compressing domestic demand.

According to reports, oil shortages have threatened the supply of essential consumer goods such as garbage bags and instant noodles, indicating that the energy shock has quickly spread to the consumer side.