Naphtha Becomes Strategic: South Korea Ends Its Zero-Reserve Gamble

South Korea has placed naphtha on its strategic stockpiling list, treating the petrochemical feedstock in much the same way it treats crude oil under its national energy reserve system. The move, reported on July 20, 2026, closes a gap that industry analysts had flagged for months. Until now neither South Korea nor Japan held a dedicated government buffer of naphtha, leaving crackers exposed with nothing between them and the spot market when shipping lanes closed.

The decision follows more than four months of feedstock stress. The Strait of Hormuz was effectively shut to commercial traffic in early March 2026 after Iran moved to blockade the waterway, cutting the route that carried a large share of South Korean imports. Estimates of the exposure vary by source and by period measured. The presidential office put the share of naphtha arriving through Hormuz at 54 percent for 2025, while the Ministry of Trade, Industry and Resources later said 73 percent of naphtha imports and 69 percent of crude imports come from the Middle East as a whole. South Korea is Asia's largest naphtha buyer, importing 237.5 million barrels in 2025 according to state-run Korea National Oil Corporation data.

The damage to petrochemical output was immediate. Yeochun NCC declared force majeure on March 4 and cut its two Yeosu units to 68 percent, later falling to the 55 percent area. LG Chem announced reductions to a minimum of 60 percent across its Yeosu and Daesan crackers, which have combined ethylene capacity of about 2.95 million tonnes a year, and shut the 800,000 tonne per year No. 2 unit at Yeosu on March 23. Lotte Chemical pulled forward planned maintenance at its Yeosu cracker from late April to late March. GS Caltex delayed a turnaround at its Yeosu refinery from March to May so it could keep feeding neighbouring plants. Open specification naphtha assessed on a CFR Japan basis rose from around 776 dollars per tonne on March 6 to above 1,000 dollars a week later, roughly double pre-war levels.

Seoul responded on several fronts. On March 12 the trade ministry announced the release of 22.46 million barrels of strategic oil reserves, the largest in the country's history and part of a coordinated International Energy Agency action. On March 18 the government temporarily designated naphtha an economic security item under the supply chain stabilisation framework and attached a 1.5 trillion won support package worth roughly 1 billion dollars. From March 27 a five-month export restriction took effect, under which naphtha shipments abroad are barred in principle and permitted only with ministerial approval.

Supply conditions improved through the second quarter. A crude swap scheme let the government lend reserve barrels to refiners waiting on replacement cargoes from the Americas, Africa and Europe, with roughly 31 million barrels requested for April and May alone. The presidential chief of staff returned from Kazakhstan, Oman and Saudi Arabia in mid-April having secured 273 million barrels of crude and up to 2.1 million tonnes of naphtha for delivery by the end of 2026 on routes that avoid Hormuz. A 674.4 billion won programme covered half the gap between pre-war and actual naphtha import prices for cargoes contracted between April and June, and was extended to substitutes such as liquefied petroleum gas and condensate. By late April the ministry expected May naphtha volumes to reach as much as 90 percent of pre-war levels, and cracker utilisation had begun climbing back from the 55 percent trough recorded in March. On June 30 the government lowered its crude resource security alert from Alert to Caution, lifted the natural gas alert entirely and ended public sector vehicle rotation rules.

That recovery proved fragile. Iran attacked a commercial vessel on July 6 and United States forces answered with four rounds of strikes between July 7 and July 11, collapsing a 60-day negotiating framework that had briefly reopened the strait. Tehran has since declared its intention to re-blockade the waterway. Naphtha prices climbed about 24 percent from their June lows and Brent settled at 84.73 dollars a barrel on July 14, a one-month high. Vice Trade Minister Moon Shin-hak convened an emergency meeting on July 13 to review refiners' procurement. The ministry said July and August crude fixtures should exceed year-earlier volumes and that the near-term hit to domestic supply would be small, while committing to real-time monitoring and parallel work on alternative sourcing.

Adding naphtha to the stockpile list changes the shape of that response. Export curbs, import subsidies and crude swaps are all reactive tools that depend on cargoes being available somewhere. A physical reserve gives the government stock it can release on its own schedule, in the same way it released crude in March. For buyers of Korean ethylene, propylene, polyethylene and downstream plastics, that should translate into fewer abrupt force majeure notices during the next closure, though building the reserve will itself add import demand and keep regional naphtha pricing firm in the near term.

The wider restructuring of the Korean petrochemical sector remains frozen. The Daesan 1 project merging HD Hyundai Oilbank and Lotte Chemical operations won approval before the war, but the Daesan 2, Yeosu and Ulsan initiatives have yet to submit final proposals. Companies sourcing polymers, packaging film, synthetic fibres, automotive components and electronics materials from South Korea should expect continued price volatility and should confirm feedstock coverage with suppliers through the third quarter.