International oil prices have surpassed 117 USD per barrel, sounding alarms about year-end inflation. Following President Donald Trump’s hints at possible additional military actions against Iran and a series of attacks on Middle Eastern oil facilities, concerns over oil supply disruptions are intensifying.
Last month, energy import prices and producer prices for coal and petroleum products soared by over 50% compared to a year ago, accumulating cost pressures. Despite the strengthening Korean won, rising import prices are fueling inflationary pressures on consumer prices.
If the Middle East conflict escalates, oil prices could climb further. Even if oil supply recovers, shortages of petroleum products and high shipping and insurance costs could continue to burden prices. There are concerns that accumulated cost increases may delay inflation easing by affecting consumer prices over time.
All Top Four Weighted Items Among Import Price Increases Are Energy-Related
According to the Bank of Korea’s producer price and import price index by item released on Monday, the four items with the largest weight among those that saw increases in import prices in September compared to the same month last year were crude oil, liquefied natural gas (LNG), naphtha, and bituminous coal.
Crude oil accounted for the largest share of the overall import price weight at 12.25%. Following that were LNG at 5.48%, naphtha at 2.94%, and bituminous coal at 2.45%, with the total of these four items reaching 23.1%.
The weight indicates how much individual item price fluctuations reflect in the overall import price index. Items with larger import volumes have greater weights, meaning that even a uniform price increase can significantly impact the overall index.
The price increases for these items also far exceeded the overall rise in import prices. In September, crude oil import prices rose by 54.4% compared to the same month last year. LNG prices increased by 32.9%, naphtha by 40.5%, and bituminous coal by 37.5%. During the same period, the overall import price increase was 17.6%.
Over the past month, crude oil import prices surged by 21.6%, leading to a 1.7% rise in overall import prices compared to the previous month. After three consecutive months of decline from June to August, prices have turned upward for the first time in four months.
The decline in the exchange rate failed to offset the rise in oil prices. The monthly average exchange rate of the dollar to the won dropped from 1,406.30 KRW (about 1 USD) in August to 1,359.00 KRW (about 1 USD) in September, a decrease of 3.4%. However, during the same period, the price of Dubai crude jumped from 88.75 per USD barrel to 113.71 USD, an increase of 28.1%.
Prices for energy-related items produced domestically have also risen sharply.
In September, the producer prices for coal and petroleum products increased by 53.6% compared to the same month last year. This level is nearly seven times the overall producer price increase of 7.7% during the same period. Compared to the previous month, prices rose by 0.9%, marking a rebound after five months.
Among specific items, jet fuel skyrocketed by 71.7%, while naphtha rose by 47.0%, kerosene by 40.3%, diesel by 37.1%, and gasoline by 24.8%, with all major petroleum products experiencing significant increases.
The rise in energy prices is pushing up the costs of raw materials and intermediate goods, accumulating burdens on businesses. Recently, the Bank of Korea noted that the rise in international oil prices is being reflected in petroleum product prices over time, and increases in industrial city gas rates and fuel surcharges for air cargo and passenger flights could act as upward pressures on future prices.
Domestic consumer prices are also showing related burdens. The consumer price increase rate in September was 2.9%, lower than the previous month’s 3.1%, but the rate for petroleum products expanded from 14.2% to 14.8%.
Trump Hints at Renewed Attacks on Iran as Oil Hits 117 USD, Warning of a Super Spike
International oil prices have recently soared due to heightened military tensions in the Middle East.
On October 23, Brent crude reached 117.45 USD per barrel during trading, reflecting a 3.8% increase and marking the highest level since April. The closing price also rose by 3.14% to 116.72 USD per barrel. West Texas Intermediate (WTI) climbed 3.8% to 103.27 USD per barrel, surpassing 100 USD for the first time in over a month.
Concerns are growing that military conflict between the U.S. and Iran may escalate around the time of the midterm elections on November 3.
On October 23, President Trump mentioned the possibility of another small Epic Fury operation against Iran during a rally in Florida. Additionally, risks surrounding oil transport routes in the Middle East are increasing.
A decrease in global oil inventories is also contributing to supply uncertainty.
According to the October oil market report released by the International Energy Agency (IEA) on October 14, global observed oil inventories decreased by 509 million barrels at the end of September compared to the end of February, just before the war.
In particular, land-based inventories dropped by 113 million barrels in September alone, nearing the lowest level since 2016.
The supply of refined petroleum products is still experiencing disruptions. According to the IEA, the daily export volume of refined petroleum products from the Middle East fell by about 60%, from 4.7 million barrels before the war to 1.9 million barrels in September.
Even if crude oil exports recover, if refinery operations and petroleum product supplies do not normalize, fuel prices for diesel and jet fuel could remain high.
Some analysts predict further price surges.
On October 17, Neil Dingman, an energy research analyst at William Blair, expressed agreement with the possibility of a super spike in international oil prices, as discussed by Chief Executive Officers (CEOs) of major energy companies.
Dingman noted that attacks on tankers and record-high freight rates are tightening the supply-demand balance in the physical oil market. He indicated that the previously expected mid-cycle oil price level of 70-80 USD per barrel has now approached 80-90 USD, predicting that prices could exceed 100 USD at times.
If international oil prices rise further, the burden of fuel and raw material costs on businesses will increase, and the already accumulated production costs will be passed on to consumer prices, potentially delaying the easing of inflation by year-end.
Experts predict that future trends in international oil prices will vary significantly depending on the developments in the Middle Eastern conflict.
If the war escalates, oil prices could soar to past peak levels of 130-150 USD per barrel. Even if the current situation persists, the decrease in global oil inventories and the demand for strategic reserves in various countries may limit the extent of price declines.
Jang Tae-hwan, a deputy research fellow at the Korea Energy Economics Institute, analyzed that if the situations in the U.S.-Iran and Russia-Ukraine conflicts worsen, oil prices could rise again to high levels, potentially reaching previous peaks.
He further explained that if the current situation persists, the market may gradually stabilize, but due to the global demand for strategic reserves and inventory shortages, the lower bound for oil prices is unlikely to drop significantly.