Market Update: Government raises oil security alert level to ‘caution,’ designates naphtha an economic security item – Full Analysis

 

The Korean government raised its security alert level on crude oil resources to “caution” on Wednesday as Iran’s blockade of the Strait of Hormuz continues to heighten supply risks. Naphtha, another crucial industrial resource, has also been temporarily designated as an economic security item.

 

“After closely examining developments in the Middle East, we confirmed that the criteria for issuing a ‘caution’ level alert under the guidelines on resource security have been met,” the Ministry of Trade, Industry and Resources said on Wednesday. “As of 3 p.m., the security alert for crude oil has been raised to the caution level.”

 


 

The government’s alert system consists of four tiers — attention, caution, alert and severe — and is issued based on factors such as the severity of a crisis and its impact on daily life and the national economy.

 

Wednesday’s move reflects a shift from potential risk to active supply disruption concerns. While the previous “attention” level indicated concerns over possible disruptions due to geopolitical instability, the “caution” level signals that tangible threats have emerged.

 

Seoul plans to respond with both supply-side releases and demand controls. On the supply side, the government will announce a plan within this week to release 22.46 million barrels of strategic reserves in coordination with the International Energy Agency.

 

Measures including exercising priority purchase rights for jointly stored reserves, securing alternative supplies that bypass the Strait of Hormuz and increasing imports from overseas production bases will also be pursued by the government.

 

On the demand side, mandatory energy-saving measures will be introduced in the public sector in coordination with relevant ministries. Additional demand curbs could follow if voluntary measures fall short.

 

Finance Minister Koo Yun-cheol speaks during a meeting of economy-related ministers at the government complex in Seoul on March 18. [NEWS1]

 

For the private sector, voluntary campaigns will be encouraged, but mandatory reductions in petroleum use may be introduced if needed.

 

The Ministry of Climate, Energy and Environment has also begun reviewing a vehicle restriction system
 — restricting driving on certain days based on license plate numbers — following instructions from President Lee Jae Myung.

 

Concerns are growing that prolonged instability in the Middle East could affect a broad range of industries. About 54 percent of Korea’s naphtha imports pass through the Strait of Hormuz, and supply disruptions have already begun affecting sectors including shipbuilding.

 

Ethylene, used for cutting steel for shipbuilding, is produced by cracking imported naphtha at petrochemical plants. On March 4, Yeochun NCC, Korea’s largest ethylene production base, declared “force majeure” due to feedstock disruptions, while Lotte Chemical, LG Chem and Hanwha Solutions have issued similar warnings for certain products.

 

Fuel prices are seen on a display board outside a gas station in Seoul on March 18. [NEWS1]

 

A force majeure is a contractual clause freeing companies from liability when uncontrollable events make the fulfilling of a contract obligation impossible.

 

Naphtha will now be temporarily classified as an economic security item, Deputy Prime Minister Koo Yun-cheol announced at an emergency economic ministers’ meeting on Wednesday. This designation allows companies to receive government support related to supply chain stability.

 

The government will also set up a special support program for Middle East-related disruptions under the supply chain stabilization fund, expanding financial assistance to 1.5 trillion won ($1 billion). Firms handling economic security items with high dependence on the Middle East will be eligible for preferential interest rates of up to 2.3 percentage points from the support program under the fund.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.

BY KIM KYUNG-HEE, NAM SOO-HYOUN [[email protected]]