Gangnam Perspective: From an Economy That Endures to an Economy That Is Prepared

There is a product called diesel exhaust fluid (urea water solution). It is a substance used in devices that reduce emissions from diesel vehicles. Most cargo trucks and buses rely on it. Until a few years ago, it was an unfamiliar term to most people.
Yet in the fall of 2021, this small liquid shook the entire country. When China restricted exports and the supply of diesel exhaust fluid was cut off, trucks across the nation were on the verge of coming to a halt. As logistics faltered, industry began to wobble as well. Long lines formed in front of gas stations, and the government had to urgently secure supplies from overseas. There was short-term turmoil, but the crisis was eventually overcome.
A similar scene had already played out in the summer of 2019. After court rulings on forced labor, Japan retaliated by restricting exports of key semiconductor materials to Korea. At the time, Korea was producing world-class semiconductors, yet it was tripped up by a handful of materials. The now-familiar phrase "Materials, Parts, and Equipment Industry" began to spread widely then. Both the government and companies responded aggressively, and the crisis was defused. Since then, localization of major core materials and diversification of supply chains have moved forward.
When a crisis hits, our country moves with a speed that surprises the world. During the IMF Crisis under the International Monetary Fund (IMF) program, citizens collected gold. In the early days of Coronavirus disease 2019 (COVID-19), we quickly built a quarantine system. Whenever a crisis came, we pulled together, found a way, and ultimately overcame it.
Recently, another source of anxiety has emerged, this time over crude oil. Tensions surrounding Iran are destabilizing the Strait of Hormuz. About 20% of the world’s crude oil passes through this sea lane. Roughly 70% of the oil imported by Korea also goes through this strait. The United States and Iran are locked in a hard-line standoff, and no one knows when the war will end. Concerns are spreading about the stability of raw material supplies.
The government currently holds crude oil reserves equivalent to about 208 days of consumption. That is more than twice the 90 days of reserves recommended by the International Energy Agency (IEA). It has also secured an additional 6 million barrels of crude oil. On paper, 208 days looks reassuring.
However, this is ultimately just an arithmetic calculation. If a blockade drags on or a domino-style collapse of supply chains occurs, that number could quickly lose its meaning.
Countries around the world are now reaching out to us. The United States is sending love calls to our shipbuilding industry, and the Middle East is competing to secure K-weapon systems. Ironically, though, the raw materials that power these impressive engines are firmly in the hands of other nations.
According to the stockpile status of the Public Procurement Service (PPS), few critical minerals have reached their target reserve levels, and some rare metals depend on barely a month’s worth of inventory. Our technology is among the best in the world, yet the lack of a single resource needed to run that technology could bring entire industries to a standstill.
People often say that "a crisis is an opportunity." If handled well, a crisis is not just a disaster but a turning point that can transform the underlying structure. The real question is how effectively we are using those turning points. When Japan’s export controls hit, we talked about localizing materials. When the diesel exhaust fluid chaos erupted, we belatedly began checking our supply chains. Now, as talk of the Strait of Hormuz intensifies, we are once again starting by checking our oil reserves.
There is a proverb in the English-speaking world that goes, "For want of a nail the shoe was lost; for want of a shoe the horse was lost; and having lost the battle, the kingdom fell." It is exaggerated, but it is a chilling warning of how a seemingly trivial shortage can spiral into a massive catastrophe.
The tensions in the Strait of Hormuz are the third warning letter about the structural flaws in our economic system. The world recognizes Korea’s ability to overcome crises. We weathered the challenges in the Materials, Parts, and Equipment Industry, and we got through the diesel exhaust fluid crisis as well.
But without preparation, another supply chain crisis will strike a few years down the road. It is time to shift from an economy that merely endures crises to an economy that is prepared for them.
Kim Ki-seok, Head of the Economics Desk and Policy Division at Financial News (kkskim@fnnews.com)