Dubai Crude Surpasses $105, Manufacturing Production Costs Surge

International oil prices have risen, increasing the production cost burden for domestic manufacturers. Amid heightened tensions in the Middle East and concerns over the Strait of Hormuz blockade, international oil prices have surpassed $105 per barrel. Coupled with logistics disruptions, domestic manufacturing production costs have surged dramatically. This has impacted energy supply and logistics, exacerbating economic difficulties across South Korea, particularly in the Incheon region. The conflict, which began with U.S. and Israeli airstrikes on Iran on February 28, escalated with Iran's full blockade of the Strait of Hormuz in March. Although a two-week ceasefire was agreed upon on April 7, the delay in final peace negotiations is heightening concerns of full-scale war. According to the Korea Energy Economics Institute, 69.1% of South Korea's crude oil imports and 19.5% of its LNG imports originate from the Middle East. The Korea Institute for Industrial Economics & Trade analyzed that a 10% rise in oil prices leads to a 6.30% increase in petroleum product production costs and a 1.59% increase in chemical product production costs. The Bank of Korea reported that the import price index in March rose by 16.1% compared to the previous month.

The blockade of the Strait of Hormuz has caused shipping freight rates to triple and cargo volume to drop by 80%. Container throughput at Incheon Port decreased by 5.4-5.6% year-on-year. The suspension of flights on the Doha-Dubai routes from Incheon International Airport has amplified damage to export companies reliant on air cargo, with particular impact on high-volume air exports such as semiconductors, pharmaceuticals, and fresh foods.

Incheon City launched an emergency economic task force to respond to the Middle East situation on March 11, addressing 92 corporate grievances and injecting 50 billion won in emergency management stabilization funds for SMEs facing liquidity crises. As of April 8, Incheon City had received and was addressing 92 corporate grievances, supporting SMEs in liquidity crisis by investing 50 billion won in emergency management stabilization funds. The city has also expanded the scope of overseas logistics cost support to 100 companies, subsidizing costs up to 1 million won per firm. Incheon City has prepared a supplementary budget of 165.7 billion won for public livelihood support, and on April 24, confirmed an 'Incheon-Style Public Livelihood Supplementary Budget' of 167.1 billion won for immediate execution. Through a supplementary budget of 543 billion won, Incheon City is pursuing six projects aimed at stabilizing public livelihoods and alleviating the burden of high oil prices. Under this supplementary budget, the city will cover the full share of the local government's contribution. Incheon e-Mum cashback will be implemented for three months from May to July, with the rate increased from 10% to 20%. Fuel cost support will begin in May, offering a discount effect of approximately 400 won per liter when paying with an Incheon e-Mum card. Incheon City will accept applications and disburse 'Incheon-Style Unfairness Resolution Support Funds' from May 11 to July 3. Support for commercial freight vehicles' fuel subsidies has been expanded to cover up to 70% of the oil price increase. Support for replacing old taxis is provided at 1.5 million won per vehicle and has been implemented since May. Farmers' and fishermen's allowances were converted to a lump-sum payment in May.

The government has made all-out efforts to stabilize prices by imposing restrictions on naphtha exports, prohibiting hoarding of petrochemical products, implementing a maximum price system, and releasing strategic reserves. The government has restricted naphtha exports and banned the hoarding of petrochemical products. The government has implemented a maximum price system for oil and released government reserves. Applications and payments for the first round of government high oil price damage support funds were conducted from April 27 to May 8.