The euro crisis is on the radar in Seoul, but South Korea's
central bankers are at least as worried about soaring oil import
prices as Iranian crude supplies taper off. [caption
id="attachment_56209" align="alignright" width="300"
caption="Vertical growth in Wangsimini, Seoul"]
[/caption]The Bank of Korea voted Friday to leave the country's
interest rates unchanged for the tenth month in a row, warning that
global risks are balanced between "debt problems in European
countries" on the growth side and the Middle East on the
inflationary side. Korea has historically bought about 10% of the
2.4 million barrels a day of imported oil it uses from Iran. While
the country has promised to curtail its trade with Iran to comply
with U.S. sanctions, it still currently buys about 215,000 barrels
of oil a day -- at a reported discount of $2 to $3 per barrel.
While paying an $650,000 a day to meet Korea's energy needs will
not exactly bankrupt one of the world's biggest economies, it
assumes that reliable replacement supply can be found. A
interruption of Iranian oil
will knock 2.6 million barrels a day off the market for most
consumers, leaving only countries willing to defy the United States
-- China and India -- able to access that fuel. Korea has requested
an exemption. In the meantime, while inflation is currently
moderate at around 2.6%, the odds of an oil shock are high enough
to keep the Bank of Korea on edge. Other countries that are
especially exposed to Iran include South Africa (
), which derives nearly 30% of its petroleum from Iranian sources.
As a member of the European Union, Turkey (
) has also been forced to find new oil partners to cover its import
needs. The upshot here is that any uptick in crude (
) will act as an additional drag on these economies from here. If
BNO rises, Korean stocks (
) are likely to slow or go into reverse -- at least until the
Iranian situation is resolved.