As South Korea is looking to reduce its over-reliance on crude oil imports from the Middle East, it has increased its oil imports from the United States in recent years, which mitigates, to an extent, Korea's exposure to a potential disruption of oil flows through the Strait of Hormuz, IHS Markit said on Thursday.
South Korea's diversification from oil supplies from the Middle East intensified as the U.S. slapped sanctions on Iranian oil exports and South Korea stopped importing oil from Iran.
Meanwhile, after the U.S. lifted a ban on oil exports at the end of 2015, American oil has started flowing to destinations in Asia.
South Korea's plan to diversify its oil supplies and to reduce its reliance on the oil flows in the Strait of Hormuz has started to take shape faster than previously expected, Fotios Katsoulas, Liquid Bulk Principal Analyst, Maritime & Trade, IHS Markit, said in an analysis.
Yet, South Korea has a long way to go to diversify and any disruption in the Strait of Hormuz will have the Asian oil importer struggling, Katsoulas noted.
The Strait of Hormuz is the most important oil chokepoint in the world with daily oil flows averaging 21 million bpd, or the equivalent of 21 percent of global petroleum liquids consumption. According to EIA estimates, 76 percent of the crude oil and condensate that moved through the Strait of Hormuz in 2018 went to Asian markets, with China, India, Japan, South Korea, and Singapore the top destinations.
Just three years ago, South Korea imported 74 percent of its crude oil from the Middle East. In 2018, this share dropped to 68 percent and then further down to 64 percent in 2019, according to IHS Markit data.
Last year, South Korea was Asia's major importer of crude oil from the U.S.
This year the trend is set to continue, unless the U.S.-Asia route becomes uneconomical, due to rising freight rates after the U.S. sanctioned Chinese shipping firms for knowingly dealing with Iranian oil, IHS Markit's Katsoulas says.
By Tsvetana Paraskova for Oilprice.com
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