South Korea weighs lifting naphtha export ban, easing vehicle restrictions as energy crisis alert nears downgrade

With most South Korean vessels stranded in the Strait of Hormuz now clearing the waterway following a US-Iran ceasefire agreement, the government is expected to begin rolling back the emergency measures it put in place during the Middle East conflict.

The government is reviewing plans to announce, as early as next week, the lifting of its naphtha export ban and an easing of vehicle odd-even day restrictions, according to officials.

The Ministry of Trade, Industry and Energy lowered the seventh round of maximum oil prices by 150 won from the sixth round, effective midnight Saturday, government officials said Sunday.

It marks the first downward adjustment since the maximum oil price system was introduced March 13 as a buffer against surging crude prices.

The ministry had originally been scheduled to set seventh-round prices on June 19 under its regular adjustment cycle, but held off at the time, judging that US-Iran ceasefire negotiations remained fluid, and extended the sixth-round prices instead.

The decision to cut prices just over 10 days later reflects a rapid shift in market conditions — traffic through the Strait of Hormuz has visibly increased and international oil prices have fallen sharply.

Two additional South Korean vessels cleared the Strait of Hormuz on Saturday, leaving only three South Korean ships still inside the waterway, according to the Ministry of Oceans and Fisheries. Of those, the Namu, currently undergoing repairs at a Dubai port, is expected to depart after mid-July. The remaining two vessels are set to exit the strait as soon as they finish loading cargo.

Barring vessels with special circumstances, all South Korean ships have effectively cleared the strait — roughly four months after they were stranded when the Middle East war broke out in late February.

International oil prices, which had surged to as high as $140 per barrel at their peak, have fallen back to around $70 — nearly recovering to pre-war levels.

The rebound defies forecasts from domestic and international research institutions that had predicted prices would remain in the $90 range even after the war ended, as supply shortage fears that had weighed on markets quickly eased.

With the first reduction in maximum oil prices breaking the ice, emergency measures for petrochemical feedstocks introduced in the immediate aftermath of the Middle East crisis are also expected to be wound back.

As the prolonged closure of the Strait of Hormuz triggered an emergency in naphtha supply, the government imposed a blanket ban on naphtha exports starting March 27, redirecting all volumes to domestic consumers.

Naphtha, a refined crude oil product, is an essential basic feedstock for the petrochemical industry and is often called the "rice of industry."

It is used to produce ethylene, propylene and other compounds that serve as the starting point for a wide range of industries — including plastics, textiles, rubber, packaging and vinyl — as well as semiconductors and automobiles.

South Korea relies on imports for 45 percent of its domestic naphtha demand, with Middle Eastern supplies accounting for 77 percent of that total, leaving the country's supply chain severely disrupted by the conflict.

The naphtha supply crunch at one point triggered shortages of pay-by-volume garbage bags and medical IV solution bags.

The government then imposed hoarding and price-gouging bans on April 15 covering seven basic petrochemical derivatives: ethylene, propylene, butadiene, benzene, toluene, xylene and other oil fractions.

The government subsequently moved quickly to diversify its naphtha supply chain toward the United States, India and other sources, reducing dependence on the Middle East and lifting secured naphtha volumes to 83 percent of normal peacetime levels.

As a result, the operating rate at domestic petrochemical companies' naphtha cracking centers — which had fallen as low as 55 percent — has recently recovered to the mid-to-high 70 percent range, approaching the pre-war normal of around 80 percent.

With naphtha supply stabilizing, the government is reviewing plans to scrap the regulation governing naphtha export restrictions and supply adjustments as early as next week — ahead of its original end date of late August, according to officials.

Observers say a downgrade of the crude oil resource security crisis alert, which has been held at the "Alert" level, is now imminent.

If the resource security crisis alert is lowered from "Alert" — the third of four levels — to "Caution," the second level, public institutions' vehicle odd-even day restrictions would be relaxed to a one-in-five-day system.

Uncertainty remains, however. A recent attack on a vessel in the Strait of Hormuz prompted US and Iranian airstrikes and retaliatory action, putting the hard-won ceasefire agreement to the test.

"Whether to scrap the naphtha export restriction and supply adjustment regulation early is a matter that must be decided by comprehensively considering the situation in the Middle East, the resumption of Hormuz transit, and the price and supply conditions for naphtha and petrochemical products — nothing has been finalized," a ministry official said.