South Korea plans to cut the share of its crude oil imports sourced from the Middle East to 50% by 2035, stepping up efforts to diversify energy supplies after the Iran war disrupted flows through a region on which the country has relied heavily for decades.

The Industry Ministry said on Wednesday that the country needed a “fundamental shift” in its natural-resource supply chains, citing the disruption caused by the conflict and the vulnerability created by South Korea’s dependence on Middle Eastern producers and the Strait of Hormuz.

South Korea obtained about 70% of its crude oil from the Middle East in 2025, according to the ministry, with most of those supplies transported through the Strait of Hormuz. The waterway is one of the world’s most important energy chokepoints, making South Korea particularly exposed to any military conflict or disruption affecting shipping through the region.

The new target would reduce that dependence by roughly 20 percentage points over the next decade. More importantly, it signals a change in how Seoul views energy security. Rather than relying primarily on large strategic stockpiles to cushion temporary disruptions, the government is seeking to diversify the physical sources of supply so that a single geopolitical shock cannot cut off such a large share of the country’s imports at once.

Under its updated 10-year natural resources security plan, the government will expand crude-oil stockpiles by about 20 million barrels by 2030.

The additional reserves are intended to provide a larger buffer during periods of supply disruption, but stockpiling alone cannot eliminate South Korea’s exposure. A prolonged disruption to Middle Eastern exports would eventually require alternative suppliers, shipping routes, and refinery adjustments, particularly for an economy that depends heavily on imported energy.

That is why Seoul is also targeting condensate, an ultra-light form of crude that is widely used to produce naphtha, a critical feedstock for South Korea’s large petrochemical industry.

The conflict has already exposed vulnerabilities in the country’s naphtha supply chain. South Korea imports about 45% of the naphtha it consumes, and roughly 77% of those imports normally come from the Middle East, according to the ministry.

That concentration creates a second-order risk from an oil supply shock. Even if South Korean refiners can secure alternative crude, petrochemical producers may still face shortages or higher costs for the specific feedstocks required by their plants.

Naphtha is special because South Korea is a major exporter of petrochemical products. Disruptions therefore have implications beyond the energy sector, potentially affecting the cost and availability of plastics, synthetic materials and other industrial products further down the manufacturing chain.

The government’s plan to secure additional condensate reflects that distinction. Energy security is not simply about ensuring that refineries have enough barrels to process. It is also about ensuring that manufacturers have access to the particular grades and feedstocks needed to keep industrial production running.

Natural gas is another area where Seoul is seeking to rebalance its exposure.

The government wants to keep South Korea’s dependence on Middle Eastern natural-gas imports below 30% by 2035. That represents a higher ceiling than its 2025 level, when Middle Eastern gas accounted for about 20% of imports, but the target nevertheless establishes a limit on how far that dependence can rise.

The broader strategy is designed to reduce concentration across several critical inputs rather than simply replace one Middle Eastern supplier with another.

South Korea’s vulnerability is amplified by the structure of its economy. It is one of the world’s largest manufacturing and exporting economies but has limited domestic supplies of oil and gas. Energy-intensive industries, including refining, petrochemicals, steel and semiconductor manufacturing, therefore depend heavily on uninterrupted imports.

A disruption can consequently transmit through the economy in several directions at once: higher crude prices increase transportation and manufacturing costs, expensive naphtha raises petrochemical input costs, and shortages can reduce industrial output. For exporters, the effect can then show up in margins and international competitiveness.

The government’s decision to broaden the plan to minerals underscores how the concept of supply security has expanded beyond traditional energy.

South Korea will increase its list of critical minerals to 51 from 38, adding 10 rare-earth elements as well as germanium, a material that is important for semiconductor production.

The additions reflect the growing overlap between energy security, industrial policy and technology supply chains. Rare earths are important for a range of advanced industrial applications, while germanium is used in semiconductor-related technologies and other high-performance applications.

For South Korea, securing such materials is necessary because its economy is deeply integrated into global technology supply chains. The country is a major producer of semiconductors, batteries, automobiles, ships and electronics, leaving its manufacturers exposed not only to energy shortages but also to restrictions or disruptions involving critical industrial inputs.

The Iran war has therefore provided Seoul with a practical stress test of vulnerabilities that had previously been viewed largely as long-term risks.

The new strategy also illustrates the limits of diversification. Moving away from Middle Eastern oil will require South Korea to compete for supplies from other producers, potentially increasing transportation costs or requiring refiners to adapt to different crude grades. Building additional inventories also ties up capital, while expanding alternative supply relationships can carry higher costs during normal market conditions.

The economic trade-off is therefore between efficiency and resilience. Purchasing from the cheapest or most geographically convenient source can reduce costs during stable periods, but concentrating imports creates potentially enormous losses when a geopolitical disruption shuts down a major supply route.

Seoul is now placing a greater value on resilience.

The 2035 targets, the additional crude stockpiles, the push for condensate supplies and the expanded critical-minerals list collectively suggest that South Korea is attempting to build redundancy into supply chains before the next crisis occurs rather than relying exclusively on emergency measures after disruption begins.

The challenge will be turning those targets into actual diversification. Cutting Middle Eastern crude exposure to 50% will require sustained changes in procurement, refinery operations and shipping patterns, while reducing mineral concentration will require alternative suppliers, recycling, stockpiling and potentially new processing capacity.

South Korea’s lesson from the Iran war is considered broader than the immediate danger posed by oil prices or the Strait of Hormuz. The disruption has exposed how an economy built around imported energy and globally integrated manufacturing can be vulnerable when a single region supplies a disproportionate share of essential inputs.

The government’s new roadmap is an attempt to make that vulnerability less concentrated before another geopolitical shock tests it again.

European equities edged higher on Wednesday as a sixth consecutive decline in oil prices eased some pressure on inflation, while renewed enthusiasm for artificial intelligence lifted technology stocks across global markets.

The gains came as investors weighed tentative signs of de-escalation in the conflict involving Iran against fresh threats from U.S. President Donald Trump, leaving markets cautious about treating the latest diplomatic developments as a durable turning point.

Sources told Reuters that Saudi Arabia had restarted operations at its East-West Pipeline and may already have resumed exports from the Red Sea port of Yanbu. The potential restoration of Saudi export capacity added to downward pressure on crude prices, with Brent futures falling 0.40% to $98.83 a barrel.

Trump said talks with Iran in New York had made progress, although he subsequently threatened to “annihilate” Iran if an agreement was not reached. The conflicting signals left investors assessing whether the latest diplomatic engagement could produce a sustained reduction in geopolitical risk or merely another temporary pause in hostilities.

“We’re probably nearing a point where it’s in both sides’ best interests to de-escalate the conflict and find a way to move forward,” said Brock Weimer, an investment strategy analyst at Edward Jones.

Iranian President Masoud Pezeshkian was scheduled to address the United Nations General Assembly later Wednesday, with markets watching for any indication that he could hold talks with Trump.

The possibility of a sustained recovery in oil flows through the Strait of Hormuz remains important for financial markets. The waterway is a critical channel for global energy supplies, meaning prolonged disruption could keep crude prices elevated, intensify inflationary pressures and complicate decisions by central banks on interest rates.

Investors, however, have seen optimism around a diplomatic breakthrough fade before.

“We’ve been through a series of starts and stops like this,” said Cole Smead, CEO and portfolio manager at Smead Capital Management.

The pan-European STOXX 600 rose 0.17% to 643.86 points. U.S. equity futures were also slightly higher, with contracts tracking the S&P 500 up 0.10% and Nasdaq-100 futures gaining 0.03%.

An MSCI gauge of global equities was broadly unchanged after four consecutive sessions of gains.

AI Optimism Broadens the Technology Rally

Technology shares provided another source of support for global equities as investors continued to respond to strong consumer interest in AI applications.

South Korea’s benchmark index gained 0.9%, with Samsung Electronics rising nearly 1%, while Taiwan’s benchmark advanced 0.8% toward record levels. Semiconductor and memory stocks have been among the strongest performers as investors look beyond AI infrastructure spending toward evidence of consumer adoption of AI-powered products.

The latest catalyst has been Meta’s Muse AI agent, which has topped U.S. app download charts over the past two weeks. Investors are now watching whether Alphabet’s Google Labs product, known as CC, can generate comparable consumer demand.

The importance of the response goes beyond individual applications. Sustained consumer adoption would provide another link between the enormous investment in AI infrastructure and eventual demand for AI services, potentially broadening the investment case for semiconductor, memory and data-center companies.

Memory stocks have increasingly taken leadership within the technology complex as semiconductor shares extended their gains.

“We expect a strong reopening in Japan tomorrow, with another move lower in crude, calm conditions in rates and Treasuries, and the Nasdaq cash and futures markets printing all-time highs,” said Chris Weston, head of research at broker Pepperstone.

“Memory stocks have taken the leadership baton, backed by another strong session for semis, which have recorded a sixth consecutive day of gains.”

Japan’s markets were closed for a holiday, although Nikkei futures traded at 66,775, around 1,760 points above the cash Nikkei’s Friday close.

The AI rally is also intersecting with corporate financing markets. SoftBank’s proposed debt offering of more than $10 billion has reportedly attracted over $20 billion in indications of interest, potentially making it one of the largest junk-bond transactions on record. Strong demand for the financing illustrates the willingness of investors to continue providing capital to companies positioned around the technology investment cycle, even as concerns over valuations and leverage remain.

Oil, Rates and The Dollar Remain Tightly Linked

The decline in crude prices also offered some relief to bond markets. Treasury futures edged higher, keeping the benchmark 10-year U.S. yield below the psychologically important 5% level.

That threshold has become closely watched because a sustained move above it could tighten financial conditions across equities, credit and currencies at a time when investors are already reassessing the path of interest rates.

Richmond Fed President Tom Barkin and Boston Fed President Susan Collins both supported last week’s interest-rate increase on Tuesday, citing concerns about inflation. Their comments reinforced the message that falling oil prices alone may not be enough to produce a rapid shift toward easier monetary policy if underlying inflation remains persistent.

The prospect of higher U.S. rates continued to support the dollar. The euro was trading around $1.1414, close to a two-month low, while the greenback also strengthened against sterling and the Canadian dollar.

The dollar was firmer against the yen at 157.76. Traders remained cautious about pushing the currency beyond 160 yen per dollar, a level that could heighten expectations of Japanese intervention to support the yen.

Currency markets are therefore caught between opposing forces. Higher U.S. rates support the dollar, while the risk of Japanese intervention limits how far the dollar-yen exchange rate can move. At the same time, lower oil prices could ease inflation in energy-importing economies and eventually reduce pressure on central banks to maintain restrictive monetary policy.

There is also a potential complication for Europe. Trump’s reported call to ban U.S. diesel exports could tighten fuel supplies in a region that relies heavily on American shipments. That means lower crude prices do not necessarily translate one-for-one into lower European inflation if refined-product markets remain constrained.

China added another layer of uncertainty to the global market backdrop. President Xi Jinping was due to arrive in Washington, with investors watching for signs that the existing U.S.-China trade truce could be extended and whether the two countries might find areas of cooperation on artificial intelligence.

For now, markets are balancing three competing forces: falling oil prices that could ease the inflation shock, renewed AI enthusiasm that is supporting technology and semiconductor shares, and geopolitical and monetary-policy risks that could quickly reverse the improvement in sentiment.

The immediate market response is seen as an indication that investors are willing to price in some reduction in the energy shock.