Publications: Notes at the Margin

The Korea Threat (October 16, 2017)


The Donald Trump/Kim Jong-un situation is grave, particularly given Bob Corker’s characterization of the White House as an "adult day care center." The probability of renewed confrontation on the Korean peninsula has increased. The consequences for the oil market, should this occur, would be dire. The threat to the market does not exist because North Korea produces oil. It does not. Neither does South Korea. The latter, however, is a significant petroleum consumer. The nation's remarkable emergence as an economic power has been accompanied by rapid growth in oil use. In 2016, it consumed 2.7 million barrels per day according to the BP Statistical Review of World Energy. In addition, South Korea is a significant participant in the world’s LNG markets. According to BP, it bought thirteen percent of the LNG shipped in 2016.


The scenario is stark. North Korea will respond to any attack by striking south. The people and economy of South Korea would be devastated. The country's oil use could be lost. In the worst case, South Korea's oil use would decline more than two million barrels per day and the global LNG market shrink thirteen percent. Absent a cut in global oil supply, the Kim Jong-un/Donald Trump food fight will likely lead to a forty percent drop in oil prices.


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