The economic fallout from the Middle East war is spreading across South Korea, with government data released on June 1 showing a sharp decline in air-travel activity and one of the steepest contractions in petroleum refining output in decades as soaring oil prices ripple through the economy.
South Korea’s air transportation production index fell 13.5% in April from the previous month, marking the largest monthly decline since December 2021, when the country was still grappling with the effects of the pandemic. Passenger traffic accounted for most of the weakness, falling 14.0%, while air-cargo activity rose 3.4%.
Officials attributed the downturn largely to higher fuel surcharges imposed by airlines as jet-fuel costs climbed alongside global crude prices.
Korean Air raised international one-way fuel surcharges in April to between about $30 and $217 per passenger, up from roughly $10 to $71 in March. The highest surcharge applied to long-haul routes from Incheon to destinations including New York, Chicago, Atlanta, Washington and Toronto.
Asiana Airlines implemented similar increases, raising surcharges to approximately $31 to $180 per passenger from $11 to $56 a month earlier.
With fuel surcharges reaching their highest level on record, industry observers say passenger demand could face additional pressure if oil prices remain elevated.
The impact of the conflict has been equally severe for South Korea’s energy sector.
Petroleum refining output fell 19.4% in April from the previous month, the sharpest decline since May 1988. Analysts attributed the drop to a combination of crude-supply disruptions linked to the conflict and maintenance work at refining facilities.
Gasoline production declined 22.4%, its steepest monthly fall since 1998, while diesel output dropped 18.8%, also the largest decrease in more than two decades.
Shipments of refined petroleum products fell 17.9%, the biggest contraction since 1998. Domestic shipments declined 11.4%, while export shipments tumbled 25.1%, reflecting weaker overseas demand and restrictions affecting naphtha exports, a key feedstock for the petrochemical industry.
Inventories of refined products also fell 5.9% from March, underscoring the strain on supply chains and production schedules.
Consumers have begun feeling the effects as well. Retail sales of automotive fuels dropped 8.3% in April, the largest decline since late 2009. Officials cited a combination of high fuel prices and temporary fuel-conservation measures, including alternating vehicle-use programs for public-sector fleets.
Although diplomatic efforts between the United States and Iran have fueled hopes that the conflict could eventually wind down, uncertainty remains elevated as Washington weighs a proposed framework for ending hostilities.
Even if fighting subsides, economists warn that damage to energy infrastructure and disruptions around the Strait of Hormuz could continue to support higher oil prices and prolong economic pressures across energy-importing nations.
Speaking at an emergency economic-policy meeting on May 29, Deputy Prime Minister and Finance Minister Koo Yun-cheol said the government would seek to cushion households and businesses from the effects of higher energy costs while supporting broader economic activity.
The latest figures highlight how a geopolitical crisis thousands of miles away is increasingly affecting transportation demand, industrial output and consumer spending in one of Asia’s most energy-dependent economies.
