HMM's very large crude carrier Universal Winner, the first South Korean vessel to exit the Strait of Hormuz since the Middle East war began, approaches a buoy — a maritime crude oil unloading facility — off the coast of Ulsan on Wednesday to offload its cargo. [Yonhap]
HMM's very large crude carrier Universal Winner, the first South Korean vessel to exit the Strait of Hormuz since the Middle East war began, approaches a buoy — a maritime crude oil unloading facility — off the coast of Ulsan on Wednesday to offload its cargo. [Yonhap]

US-Iran peace deal set for official signing in Switzerland on Friday

Supply chain recovery, exchange rate uncertainty to delay SME normalization

With a US-Iran peace deal appearing imminent, South Korea's small and medium-sized enterprises are growing hopeful after enduring raw material shortages from the prolonged Middle East conflict. However, industry officials warn that a return to pre-war conditions is unlikely before September, given lags in raw material prices, exchange rates and maritime freight normalization.

According to foreign media reports and industry sources, US President Donald Trump announced on his Truth Social platform that "the agreement with Iran has been finalized." Trump also approved the toll-free reopening of the Strait of Hormuz and the immediate lifting of the US naval blockade. Pakistani Prime Minister Shehbaz Sharif separately confirmed that the United States and Iran had reached a peace agreement, with a formal signing ceremony scheduled for Friday in Switzerland.

If the peace deal proceeds as planned, the supply chain instability originating from the Middle East — which has persisted since late February — is expected to ease. The Strait of Hormuz blockade drove up international oil prices, maritime freight rates and raw material costs simultaneously, placing a heavy cost burden on small manufacturers that rely on plastics, packaging materials, film, non-ferrous metals, and construction and civil engineering supplies.

The SME sector does not expect an end-of-war declaration to translate immediately into stable costs. Accumulated raw material inventory shortages, existing high-priced supply contracts, shipping delays and the burden of an elevated exchange rate all remain. Industry officials estimate that even if Strait of Hormuz traffic resumes, it will take at least three months before the effects are reflected in actual raw material procurement and domestic supply prices.

A survey on Middle East-related raw material supply difficulties among small and medium-sized enterprises, released by the Korea Federation of SMEs in early June, found that 94.6 percent of respondents cited increased cost burdens as the primary impact on their production activities. Some 80.7 percent reported raw material shortages. Operational disruptions were reported by 19.8 percent of respondents, while 12.4 percent said they had experienced delivery delays. Price increases were also steep: 71.9 percent of companies said their average raw material purchase prices had risen more than 20 percent compared with late February. Among firms using packaging materials, film and paper, 31.4 percent reported price increases of 80 percent or more.

The survey also found that 23.7 percent of respondents said their current inventory stood at less than 30 percent of an adequate level, and 36.1 percent said their existing stock would last less than one month. That means more than one in three surveyed SMEs could run out of raw materials within a month even if a peace agreement is reached.

The exchange rate adds another layer of uncertainty. The won-dollar rate climbed into the 1,500-won range during the prolonged conflict, compounding the burden on small manufacturers that import raw materials to produce goods for the domestic market. Even if the won strengthens, companies are still locked into import contracts and payment obligations signed at the higher rate, meaning full normalization will take time.

"If the war ends within June, it is at least a relief that the uncertainty will be resolved — but that does not mean the supply chain will untangle all at once," said Kim Hee-joong, head of the economic policy division at the Korea Federation of SMEs. "Even if the war ends this week, normalization will not come until after September. The plastics sector in particular has suffered so severely that it could take even longer."

An SME industry official said the peace agreement was positive in that it removed uncertainty, but cautioned that small businesses had been running down their inventories for a long time. "Until raw material prices are actually reflected in supply prices and procurement stabilizes, the government and industry need to keep monitoring the situation closely," the official said.

Foreign visitors exchange currency at a money changer in the Myeong-dong area of Jung-gu, Seoul, on Sunday, as the won-dollar rate entered a period of calm following government verbal intervention and growing expectations of an end to the Iran war. Economists have expressed concern that while a brief spike past 1,600 won could be absorbed if quickly reversed, a sustained rate in the 1,500-won range could shake the foundations of the economy. [Yonhap]
Foreign visitors exchange currency at a money changer in the Myeong-dong area of Jung-gu, Seoul, on Sunday, as the won-dollar rate entered a period of calm following government verbal intervention and growing expectations of an end to the Iran war. Economists have expressed concern that while a brief spike past 1,600 won could be absorbed if quickly reversed, a sustained rate in the 1,500-won range could shake the foundations of the economy. [Yonhap]

hong@heraldcorp.com