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War in Ukraine

Korea jittery over oil, gas, commodity weaponization

Sanctions against Russia and looming logistics disruptions will test the incoming government’s ‘Y-nomics’

By Mar 13, 2022 (Gmt+09:00)

4 Min read

Raw material prices are soaring in the wake of the Russia-Ukraine war.
Raw material prices are soaring in the wake of the Russia-Ukraine war.

South Korea’s energy and raw materials imports have surged to all-time highs in value terms in the wake of Russia’s invasion of Ukraine, posing a challenge for the country’s incoming President Yoon Suk-yeol, who faces a growing trend of resource nationalism worldwide.

International sanctions against Russia, coupled with looming logistics disruptions, are also set to cripple the recovery of the Korean economy – Asia’s fourth-largest – from the pandemic slowdown, hurting its major exporting companies across industries, analysts said.

According to Korea Customs Service data on Sunday, the country’s imports of three key energy sources – crude oil, gas and coal – reached a record $33.3 billion in the first 10 days of March, up 84% from a year earlier.

The three key items accounted for 25% of all imports in value terms, also a record high. Higher global energy prices resulted in Korea’s trade deficit of $5.3 billion in the cited period.

“In the past, resource nationalism was largely limited to a few resources such as rare earth minerals. But many governments are increasingly asserting control over not only fossil fuel reservoirs but also natural resources and grain from advanced countries to less-developed nations,” said an official at Korea Trade-Investment Promotion Agency (KOTRA).

China's and other countries' tendency toward resource nationalism is on the rise.
China's and other countries' tendency toward resource nationalism is on the rise.

“The Russia-Ukraine war is adding fuel to the intensifying tendency of resource nationalism.”

Russia’s military attack on Ukraine, which started last month, has jacked up already high oil and commodity prices amid concerns over supply chain disruptions. Korea heavily relies on imports for most of its energy needs.

Earlier this month, oil prices spiked to a 14-year peak with the global benchmark Brent at $139.13 a barrel.

RUSSIA SHUTS TO COUNTER SANCTIONS

In response to increasing international sanctions against Russia, the country has stopped exporting its soft commodity products, including grain and fertilizer. Ukraine, for its own needs, has also put a ban on wheat exports.

Russia and Ukraine account for about a quarter of the world’s wheat and barley production.

The war in Ukraine has already put many Korean exporters, including Samsung Electronics Co., LG Electronics Inc. and Hyundai Motor Co., in a bind due to suspended ground, sea and air routes to Russia.

Russia is Korea's 10th-largest trading partner, from which the Asian economy imports key raw materials such as crude oil, aluminum and naphtha. It also serves as a gateway to Europe for Korean exporters.

According to the Refinitiv/CoreCommodity CRB Index, an indicator of key global commodity prices, 40% of the 19 main raw materials, including nickel, zinc and palladium, saw their prices surge to record-high levels within two weeks of the Russian invasion of Ukraine.

Oil prices are rising amid growing resource nationalism
Oil prices are rising amid growing resource nationalism

Soaring prices of metals for rechargeable batteries are particularly worrisome for Korea, home to LG Energy Solution Ltd., the world’s second-largest battery maker, and its local battery rivals Samsung SDI Co. and SK On Co.

Russia is the world’s second-largest producer of aluminum, a key ingredient of cathode materials, and the No. 3 producer of nickel. Russia makes up 10% of the global production of those raw materials.

YOON FACES RESOURCE WEAPONIZATION

A recent tide of resource nationalism saw an increasing number of countries from China to Indonesia and Mexico strengthening control over natural resources in their territories.

China, which has already weaponized rare earth minerals, is tightening its grip on secondary battery raw materials such as lithium, cobalt, manganese and tungsten.

Earlier last month, Mexico said it is establishing a state-run company to manage the development of its lithium reservoirs. About 60% of lithium reserves are in Latin American countries, including Bolivia, Chile and Argentina.

South Korea's new president faces the daunting task of securing key resources
South Korea's new president faces the daunting task of securing key resources


Indonesia, one of the most resource-rich countries in Asia, announced earlier this year that it will completely ban exports of unprocessed minerals, including tin, bauxite, copper and gold, following an export ban on nickel ore earlier.

Analysts said one of the immediate priorities for Korea’s president-elect will be to expand the country’s resource diplomacy.

Under the outgoing administration of President Moon Jae-in, many of Korea’s development of overseas mineral and other resource development projects have come to a halt due to mounting losses from years of unprofitable energy exploration or development.

“The current resource procurement policy needs to be overhauled from the perspective of national interest. The new government should aim to secure key resources for both economic and strategic reasons. Successful resource procurement will be integral to the new economic policy of Y-nomics,” said an industry official.

Last week, main opposition candidate Yoon of the conservative People Power Party won Korea’s presidential election. He won 48.6% of the votes, winning only marginally over runner-up Lee Jae-myung of the progressive ruling Democratic Party.

Yoon has vowed to rescind many of the current government's policies, including phasing out nuclear energy.

Write to Kyung-Min Kang at Kkm1026@hankyung.com
In-Soo Nam edited this article.
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