As tensions between the U.S. and Iran escalate once again, fueling uncertainty surrounding the Strait of Hormuz, the domestic refining industry is closely monitoring the status of its crude oil supply.

While supply for July and August has already been secured, industry observers suggest that the procurement of crude oil from the Middle East will become the biggest variable from September onwards, when additional contracts are required.

A tanker that escaped the Strait of Hormuz docked at an Ulsan oil unloading facility [Ulsan=Yonhap News]

According to industry sources on the 13th, the recent instability in the Middle East has led to heightened tensions around the Strait of Hormuz.

The Strait of Hormuz is the world's largest energy chokepoint, through which approximately 20 million barrels of crude oil and petroleum products pass daily. As South Korea relies on the Middle East for about 70% of its crude oil imports, the situation in the Strait has a direct impact on the nation's energy supply and the refining industry.

Although there has been no official closure of the Strait to date, the uncertainty surrounding the global crude oil supply chain is mounting again as some tankers are diverting or adjusting their sailing schedules.

As a result, changes are emerging in the methods used to procure Middle Eastern crude oil.

Previously, it was standard practice for crude oil from the Middle East to be transported directly from the producing countries to domestic refiners via tanker.

However, since risks surrounding the Strait of Hormuz have intensified, Ship-to-Ship (STS) transfers—where crude oil is moved from a tanker that has passed through the Strait to another vessel—have been increasingly utilized.

STS transfer is an inefficient method that increases both transport time and costs. Nevertheless, it is understood that the domestic refining industry has relied on this unusual practice to secure a stable supply of crude oil, as alternative routes are difficult to obtain and direct passage through the Strait has become more challenging.

However, with Iran repeatedly signaling the possibility of controlling the Strait of Hormuz, there are growing concerns that even this procurement method could face disruptions. As the number of tankers passing through the Strait decreases, securing the vessels required for STS transfers is also becoming increasingly difficult.

An official from the refining industry stated, "During the previous negotiation phase, a large volume of competitively priced Middle Eastern crude was released, leading domestic refiners to secure supplies via STS transfers despite the added cost burden," adding, "Now, with tensions surrounding the Strait of Hormuz rising again, even that is becoming a difficult situation."

Downgrade of the crude oil resource security crisis alert [Gwangju, Gyeonggi=Yonhap News] 

The industry believes there will be no major issues with short-term production and supply based on the volumes already secured for July and August.

However, from September onwards, when additional procurement contracts are needed, the difficulty of securing Middle Eastern crude is expected to be a major variable. Analysts suggest that if the Middle East crisis becomes prolonged, increased competition for oil could worsen supply conditions, and rising crude oil premiums could further increase cost burdens for refiners.

International oil prices are also showing increased volatility due to rising tensions in the Middle East. Dubai crude, primarily imported by South Korean refiners, fell to the $63 per barrel range early this month, but has since surpassed the $70 mark following increased uncertainty over war negotiations. Brent crude and West Texas Intermediate (WTI) have also shown an upward trend during the same period.

The exchange rate is also a factor of concern. For the domestic refining industry, which settles crude oil payments in U.S. dollars, there are forecasts that the cost of importing crude will rise even further if the won-dollar exchange rate increases on top of the rise in international oil prices and crude premiums.