Korea's Kospi falls 4% as Hormuz strikes push Brent toward $95
Key points
- Kospi closed down 3.99% on oil and rates
- Brent near $95 after new Hormuz strikes
- Korea buys about 70% of its crude from the Middle East
- Its refineries are built for heavy Middle East oil
The Kospi ended September 2 at 6,562.72, a decline of 3.99 percent, while the Kosdaq lost 2.10 percent to close at 803.98. Medical and precision equipment was the only Kospi sector to go up, gaining 0.97 percent.
Foreign investors and institutions sold a net 3.9528 trillion won ($2.89 billion) between them, and individuals bought 2.3023 trillion won ($1.68 billion). Samsung Electronics fell 4.02 percent and SK Hynix fell 4.73 percent, but the worst of it was further down the board, where SK Square lost 7.97 percent, HD Hyundai Electric lost 7.54 percent and POSCO Future M lost 8 percent.
Lee Kyung-min, a researcher at Daishin Securities, said, "as risk aversion widened along with rising government bond yields in major countries and rising international oil prices, foreign investors and institutions sold together, and the index broke below the 6,600 line and traded weak," as quoted by Asia Economy (Korean language). That quote is translated from Korean.
The oil half of that is the new part. Brent rose about 5 percent on Tuesday to near $95 a barrel, its highest since late July, after the US military struck Iranian targets around the Strait of Hormuz. Two tankers had been hit in the strait before that.
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Why an oil price is a Korea problem
Korea produces almost no oil of its own, so nearly all of the crude it uses is imported, and about 70 percent of that comes from the Middle East. Most of it passes through Hormuz.
People have been pointing this out since the 1970s. The basic dependence has survived every attempt to reduce it.
Korean refineries are built to process heavy crude with high sulfur content, which is what the Middle East sells. That configuration is good for making high-value products, and it's also what locks the country in. Bringing in large volumes of light crude, the kind US shale produces, would lower processing efficiency and shrink refining margins, and rebuilding the plants to handle it would cost an enormous amount.
Shipping does the rest. The Gulf route is short and already served by a fleet of large tankers, so the unit cost is low. American or South American crude takes much longer to arrive and ties up more money on the water.
Korea did once pull its Middle East share down from above 80 percent to the 60s and 70s, but it drifted back as soon as the pressure eased. Global Economic (Korean language), in an April feature on the country's energy structure by reporter Park Geun-ho, put it plainly. The paper wrote that Korea's crude import structure is closer to the result of a system than of policy, and that as long as the system holds, diversification will keep being proposed without changing anything.
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The government already ran this drill
On August 2, Trade, Industry and Energy Minister Kim Jung-gwan chaired an emergency meeting on the real-economy effects of the Middle East conflict. The scenario the ministry worked through was not Hormuz alone. It was Hormuz and Bab el-Mandeb closing at the same time.
Kim asked officials "to check and manage the supply situation in real time, taking into account even the worst case where the Bab el-Mandeb Strait is blocked on top of the Strait of Hormuz," and "to prepare thoroughly so that every available policy tool can be mobilized if a crisis happens, including the use of alternative routes and strategic reserve swaps," according to Herald Business (Korean language). Those quotes are translated from Korean.
The ministry's own numbers that day are the ones worth remembering now. Crude for August and September had been secured at or above the previous year's average, and October volumes were being locked in a batch at a time. Naphtha was covered for August, with September onward still needing work. The refiners were also asked to look again at the Suez Canal and Egypt's Sumed pipeline as ways around the strait.
So the firmest part of the cushion the government described a month ago ends around now. Kim is the same minister who spent August pointing at record semiconductor shipments as evidence that Korean exports were broadening out.
What it costs if this lasts
The Korea Development Institute published an estimate on May 11 of what higher oil does to Korean prices. Under its baseline, where crude falls from $100 a barrel in the second quarter to $87 by the fourth, the oil increase adds about 1.2 percentage points to consumer inflation in 2026 and about 0.9 points in 2027. In the scenario where prices stay near $105 all year, the 2027 figure is 1.8 points instead. Brent near $95 sits between those two paths.
The institute also found the pressure reaches core inflation, about 0.1 percentage point for every 10 percent rise in Dubai crude, with the effect carrying into next year. A central bank has to care about that one, and the Bank of Korea has been raising rates since July.
One last thing from Wednesday. Higher crude usually helps refining margins, so an oil spike is often a good day for refiners. S-Oil fell 0.53 percent and SK Innovation fell 2.81 percent. Their declines suggest the market was focused less on the oil price than on whether the oil would arrive at all. The won closed at 1,368.7 to the dollar, 1.7 won stronger than the day before.
Chip stocks led the index down again. What memory prices themselves have been doing is in our piece on spot HBM.
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