Korea to deploy 20 million barrels of Middle East crude through swap, delays urea measures

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Korea to deploy 20 million barrels of Middle East crude through swap, delays urea measures

Published: 31 Mar. 2026, 17:33

SARAH CHEA
[email protected]

Audio report: written by reporters, read by AI

Customers fuel their cars at a gas station in southern Seoul on March 31, when the oil prices rose to near 2,000 won per liter ($4.93 per gallon). [YONHAP]

Korea is moving to release 20 million barrels of Middle Eastern crude from its strategic reserves for distribution to local refiners under a swap arrangement that is expected to help sustain supply through the end of June.

Follow-up measures on urea supply, which were initially planned for Tuesday, were abruptly postponed, citing concerns that a rapid succession of interventions could inflame consumer anxiety and, in turn, exacerbate market dislocations.

Under the swap program, the government will lend its crude reserves to domestic refiners, who will return the crude later. It's designed to bridge the temporal gap created by shipping delays, as refiners scramble to secure replacement cargoes from Africa, the Americas and Central Asia, a process that can take several weeks from purchase to delivery.

Industry Minister Kim Jung-kwan, far right, inspects a gas station in Cheongju, North Chungcheong, on March 30 after the government implemented an oil price cap system to prevent private gas stations from hiking oil prices. [NEWS1]

All four of the country’s major refiners — SK Energy, HD Hyundai Oilbank, GS Caltex and S-Oil — have signaled their intention to participate, with roughly 20 million barrels expected to be exchanged under the scheme.

Refining facilities are typically optimized for Middle East crude, meaning that alternative supplies cannot be fed into the system immediately if blending ratios are not met. By swapping in government-held Middle Eastern reserves, officials aim to relieve these so-called blending constraints and preserve processing efficiency.

"Even if refiners find alternative suppliers and they are procured now, they would not arrive until May, leaving an interim gap in supply," said Yang Ki-wook, director-general of the Office of Industry, Trade and Resource Security at the Ministry of Trade, Industry and Resources on Tuesday during a press briefing at the Sejong government complex.

"Flexible deployment of strategic reserves would bridge that lag as refiners move to secure alternative volumes," Yang said, adding that the deployment would prevent disruptions to crude supply "at least through June.”

The program will be implemented temporarily over April and May, with the option of one-month extensions subject to approval by the industry minister.

A gas station in Seoul sells urea solutions on March 30. [YONHAP]

The Korean government is pushing hard to source crude from other countries, including the United States, Brazil, Colombia, Algeria, Gabon and Kazakhstan, as well as Asia-Pacific suppliers such as Australia and Papua New Guinea.

Yang also explained that the government’s decision to hold off on additional measures regarding urea was driven by concerns that, given the market’s heightened sensitivity to urea, "consumers tend to react more sharply, and wholesalers may resort to stockpiling."

Urea solution, widely used to reduce emissions from diesel vehicles, remains a critical input in both the transport and agricultural sectors. Korea relies on the Middle East for 43.7 percent of its fertilizer-grade urea, with 38.4 percent of that volume transiting the Strait of Hormuz, according to the Ministry of Agriculture, Food and Rural Affairs.

Korea's combined public and private inventories of automotive urea solution are sufficient to last more than 2.8 months, Yang said, with an additional 6,000 tons of urea scheduled for import by April.

The government has already banned hoarding and sales refusals of urea starting last Friday, which means importers, producers and distributors who stockpile volumes beyond typical levels for more than seven days or deliberately withhold sales will face penalties.

A notice is posted stating that due to naphtha shortages, the purchase of trash bags is limited to one per customer at a supermarket in Seoul on March 25. [WOO SANG-JO]

Violations may trigger corrective orders, up to three years in prison or fines of up to 100 million won ($65,000).

The directive is intended to pre-empt a repeat of the 2021 supply shock, when China’s export restrictions triggered a nationwide shortage of urea solution.

Around 99 percent of gas stations in Korea, or 4,242 out of 4,267 monitored gas stations, currently have urea solution in stock, with their average retail price standing at 1,504.8 won per liter ($3.71 per gallon), a level below typical norms, according to data from Opinet, a government-run fuel price information service.

With naphtha supply also facing potential disruptions, the government has been conducting daily monitoring of some 50 critical items across 11 sectors that use naphtha, including semiconductors, batteries, pharmaceuticals and shipbuilding.

Korea has implemented a policy to ban Korean refiners from exporting naphtha and instead require them to supply it to local entities, though those volumes account for less than 10 percent of the country’s total production. Korea imports roughly 45 percent of its naphtha, with about 70 percent sourced from the Middle East.

BY SARAH CHEA [[email protected]]