Government Considers Russian Crude Oil Imports
As the prolonged conflict between the United States and Iran creates difficulties in international crude oil supply, the government and energy-related companies are reviewing the resumption of Russian crude oil imports, which were halted due to Western sanctions. This is seen as a move to secure the crude oil supply chain amid energy market instability. The disruption of Middle Eastern crude oil and naphtha supplies due to the impact of the Strait of Hormuz blockade has led to surging spot prices and procurement difficulties. Ethylene, extracted from naphtha, is an essential raw material used across industries like plastics, construction, automotive, electronics, and textiles.
47% of domestic naphtha supply is produced by refiners refining imported crude oil, while the remaining 53% is imported from overseas, with 77% of this imported portion originating from the Middle East. Although the need for import source diversification has been raised with every fluctuation in international oil prices due to instability in the Middle East, the domestic refining industry's dependence on the Middle East remains around 70%.
South Korea joined the US and European Union (EU)-led economic sanctions imposed on Russia after its invasion of Ukraine in February 2022, suspending imports of Russian crude oil. Recently, the US Treasury Department announced temporary authorization for the transport and sale of already-shipped Russian crude oil and petroleum products in response to soaring international oil prices, opening a possibility for resuming imports. The US has also decided to permit the sale of Iranian crude oil for one month to curb soaring international oil prices. Russian crude oil has the advantage of being similar in properties to Middle Eastern heavy crude and being geographically close, resulting in lower transportation costs. Prior to the sanctions, in 2021, South Korea imported approximately 5.6% of its total crude oil and 20% of its naphtha from Russia.
As the prolonged war between the US and Iran has led to an emergency in crude oil supply and demand, the government and the oil and petrochemical industries are considering resuming imports of Russian crude oil. The issue of importing halted Russian crude oil was also discussed at a parliamentary meeting held last week.