▲ The very large crude carrier Universal Winner, a South Korean oil tanker operated by Korean shipping company HMM, reaches waters off the southeastern port city of Ulsan on June 10, 2026, about three weeks after exiting the Strait of Hormuz, where it had been stranded amid tensions in the Middle East. (Yonhap)
▲ Containers are stacked at a port in Pyeongtaek, around 60 kilometers south of Seoul, on July 1, 2026. (Yonhap)
▲ An employee pumps gas into a car at a gas station in Seoul on July 12, 2026. (Yonhap)
▲ This file photo, taken June 29, 2026, shows buildings under construction at the Yongin semiconductor cluster, located in Yongin, south of Seoul. (Yonhap)
▲ First Vice Finance Minister Lee Hyoung-il (C) speaks during a press conference in the central city of Sejong on July 10, 2026, in this photo released by the Ministry of Finance and Economy. (PHOTO NOT FOR SALE) (Yonhap)

(News Focus) economic policy-H2 plan

(News Focus) S. Korea eyes post-Middle East war strategy centered on supply chains, AI projects

By Kang Yoon-seung

SEOUL/SEJONG, July 14 (Yonhap) -- South Korea will pursue a post-Middle East war strategy for the remainder of 2026 by strengthening its supply chains and implementing three megaprojects aimed at addressing economic uncertainties, including inflation and foreign exchange volatility, the finance ministry said Tuesday.

The announcement came as South Korea unveiled an updated economic growth strategy report, which projected Asia's fourth-largest economy to expand by 3 percent in 2026, up 1 percentage point from its previous outlook, while stressing the need to reflect lessons learned from the Middle East war in its economic policies.

"Amid the global semiconductor boom, South Korea's major economic indicators, such as exports and stock indexes, have remained strong," Yoo Byung-hee, director general for economic policy at the Ministry of Finance and Economy, said during a press conference on the second-half economic policy plan held in the central city of Sejong last week.

Yoo, however, noted that the country faces a "triple whammy" of inflation, foreign exchange volatility and high borrowing costs, which pose risks to small merchants and other vulnerable groups.

"With growth dependent on the IT sector, disparities between exports and domestic consumption, as well as between the IT and non-IT sectors, along with the structural concentration of economic activity in the Seoul metropolitan area rather than the provinces. The country's potential growth continues to face downward pressure," Yoo added.

Yoo said the second-half blueprint, therefore, focused largely on responding to changes in the economic environment since the beginning of the year, including the impact of the conflict in the Middle East.

"Due to the war, crude prices have surged, while oil price-driven inflation and supply chain disruptions have negatively affected production and employment in vulnerable sectors," the director general said.

To address such challenges, the finance ministry said South Korea plans to use lessons from the Middle East war to establish an "unwavering" supply chain by rolling out tailored measures based on the characteristics of each critical import item.

The government classified strategically important imports into four categories: items that can be produced domestically, items that cannot be produced locally but can be stockpiled, items that can neither be produced nor stockpiled domestically but can be secured through overseas production bases and items for which none of those options are feasible.

For items that can be produced domestically, South Korea will offer incentives to encourage local production of strategically important goods, including tax credits based on domestic production and sales.

The government will also continue to provide production subsidies for strategically important items whose domestic production remains less cost-competitive.

The recycling rate of critical minerals, currently about 7 percent, will be raised to 20 percent by 2030, the ministry said.

For strategically important items that cannot be produced domestically but can be stockpiled, such as urea for fertilizer, naphtha and crude oil, South Korea will expand its stockpiling capacity.

The government will strengthen cooperation with major oil producers, including Saudi Arabia and the United Arab Emirates, by expanding joint oil stockpiles.

South Korea will additionally seek to expand overseas production capacity through overseas investment funds and increase investment in foreign supply chains.

Where none of the above measures are feasible, South Korea will focus on providing financial support for importers, such as low-interest loans, while diversifying import sources and offering transportation subsidies.

"Following the Middle East war, we have gone through various challenges over the past three months, and we have felt the need to pursue changes as such risks could emerge again. So we made deep contemplations in terms of the supply chain (in the latest report)," First Vice Finance Minister Lee Hyoung-il also said.

Along with measures to shield the economy from external shocks, South Korea also vowed to successfully implement three megaprojects designed to raise the country's long-term growth potential by building on the recent AI momentum.

The three megaprojects, recently unveiled by the government, center on fostering the semiconductor, AI data center and physical AI industries, with the goal of "completing the success story of Korea's semiconductor industry."

Major elements of the initiative include expanding memory chip production capacity through conglomerates' planned investment of 800 trillion won (US$532 billion) in the southwestern region for new chip production facilities, along with a separate 156 trillion-won investment in the central region for semiconductor packaging facilities.

"With the announcement of the three megaprojects, we believe an environment has been created in which businesses are accelerating facility investment in response to the booming chip industry," Lee said. "Accordingly, while facility investment was projected to grow by 2 percent earlier this year, we have revised up the forecast to 5 percent."

Seoul will also expand support for research and development (R&D) in the semiconductor industry, including 200 billion won through 2032 for next-generation chips beyond high bandwidth memory (HBM).

South Korea will support investment plans announced by SK Group, GS Group and Naver Corp. to inject a combined 550 trillion won in AI data centers across the country as well, with the goal of helping the projects break ground in 2028.

On the physical AI industry, the government pledged to promote the application of such technologies in factories, robotics, automobiles, shipbuilding, electronics and semiconductor manufacturing while providing tailored support for each sector.

Seoul also aims to commercialize AI robots by 2028 by developing specialized models for industries, including displays, shipbuilding, electronics, hospitals and hotels.

"The government will operate an all-out support system to create a favorable investment environment and address regulatory hurdles in order to transform South Korea's recovery into a major economic leap through the three megaprojects," the report said.

The first vice finance minister noted the three megaprojects were designed to maintain the momentum of the recent semiconductor supercycle.

"The investment involving the three megaprojects is massive," Lee said, noting the United States has in the past overcome a slowdown in growth projections in the late 1990s and 2000s through massive investment in the IT industry.

"Following major investment, productivity across the economy improves, boosting total factor productivity. We believe this will help raise the country's growth potential," Lee said.

"We believe the target is challenging but achievable. We plan to pursue it during the Lee Jae Myung administration based on such confidence."

(END)

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