Yoon impeachment to buoy South Korea currency, crude import economics

The impeachment of former South Korean President Yoon Suk-yeol could put the brakes on the won's sharp downtrend as foreign investor confidence recovers, paving the way for improvement in refiners' crude oil feedstock procurement economics and their overall refining margins.

Foreign fund repatriation accelerated after Yoon declared martial law on Dec. 3, 2024, causing the dollar-won exchange rate to rise to its highest level in over a decade which severely damaged the energy and commodities purchasing power of Asia's third-largest crude importer and the world's fourth-largest crude buyer.

Financial market experts and analysts based in Seoul, Hong Kong and Singapore indicated that highly risk-sensitive Asian currencies such as the won are vulnerable to global economic growth concerns amid a slew of US tariffs and domestic political uncertainties. However, the removal of Yoon from office bodes well for foreign investor confidence, and the currency is expected to recover or, at the very least, its decline is likely to slow down.

On April 4, the South Korean Constitutional Court ruled unanimously to accept the impeachment request against Yoon after a hearing that lasted 111 days since the filing of the case.

The dollar-won exchange rate surged to Won 1,487 during intraday trading in Seoul on Dec. 26, 2024, marking the highest level in 15 years and nine months. The currency pair was last quoted at Won 1,465.16 at 1 pm local time on April 7.

The volatile dollar-won exchange rate threatened overall refining margins, as the local currency's weakness undermined purchasing power in international markets for feedstock crude, naphtha, and LPG, according to operation and feedstock managers at three major refiners and petrochemical makers, including Hanwha Total.

For every Won 10 increase in the dollar-won exchange rate, refiners could generally incur foreign exchange-related losses in the range of $50 million-$100 million, according to feedstock management and trading sources based in Seoul and Singapore. The decline of the won also raises interest payments on short-term bank loans and dollar-denominated corporate bonds issued by refiners and petrochemical producers, the sources added.

However, refiners and money-market participants are optimistic that capital outflows will slow down going forward, and the won could stage a rebound if foreign investors renew their interest in South Korean equities and government bonds.

The fact that the leader who attempted to threaten the nation's legislative system and citizens was removed in a peaceful, constitutional and democratic manner would likely be well received by major foreign funds, investment institutions, and private investors, restoring confidence in South Korean assets and, of course, the currency, according to fixed-income market analysts at investment and securities houses based in Seoul and Hong Kong, including Mertiz Securities, KB Financial, and UBS.

"Typically, refiners set aside sizable funds to hedge against oil price swings and forex market volatility ... The stability in the local currency should allow for significant cost cuts on such unnecessary hedging expenses," said a feedstock and logistics manager at a major South Korean refiner based in Ulsan.

The latest data from the state-run Korea National Oil Corp. showed that South Korea imported 166.26 million barrels of crude in the first two months of 2025, with refiners paying an average of $79.44/b during this period. KNOC's import cost data includes freight, insurance, taxes, and other administrative and port charges.

Platts, part of S&P Global Commodity Insights, assessed the physical Middle Eastern sour crude benchmark Cash Dubai at an average of $79.165/b over January-February.

Oil Product Exports

The current leadership vacuum in South Korea poses no risk to refiners' spot and term oil product supply commitments. More focus may be given to oil product exports than domestic sales, at least until the won fully recovers, according to middle distillate marketers at three major refiners, including S-Oil.

"Domestic politics have absolutely nothing to do with private sector businesses and certainly nothing to do with South Korean middle distillate supplies," said a sales and marketing executive at a major refiner.

South Korea, Asia's largest net exporter and supplier of clean oil products, sold 63.1 million barrels of gasoline, gasoil, and jet fuel combined in the first two months, according to KNOC data.

In recent spot tenders, GS Caltex was reported to have sold 300,000 barrels of Jet A-1 fuel for loading on April 22-26 to an unidentified Asian buyer at a discount of around 80-90 cents/b to the Mean of Platts Singapore jet fuel/kerosene assessments, FOB.

Prime Minister Han Duck-soo, acting on behalf of the president, is currently reviewing a plan to confirm and announce the next presidential election date of June 3 at the regular cabinet meeting on April 8. June 3 would be the latest date according to the constitution and the Public Election Act, which stipulates that an election must be held within 60 days after the confirmation of an impeachment.