The fallout from the Iran war is shaking the regional economies of Busan, Ulsan, and South Gyeongsang Province. As the real-economy downturn becomes visible, with manufacturing output, exports, and employment slowing simultaneously, analysts say the episode has once again confirmed the vulnerability of a regional industrial structure heavily dependent on Middle Eastern crude oil and exports. Beyond short-term damage relief, securing "resilience" by fundamentally reshaping the industrial structure has emerged as an urgent task.
According to a report titled "Impact of the Iran War and Its Effects on the Southeastern Region," released by the BNK Research Institute on Monday, the southeastern economy saw major indicators — production, exports, and employment — deteriorate across the board from the second quarter of this year. Manufacturing output in May fell 2.1% from the same month last year. Export volume dropped 22.0%, marking the steepest decline in 64 months since January 2021. Growth in the number of employed persons was limited to 6,000, indicating that even the labor market is rapidly slowing.
In particular, the region's key industries — petroleum refining, petrochemicals, and automobiles — took a direct hit. Petroleum refining output fell 21.3%, chemicals 11.3%, and automobiles 9.4%. Exports also signaled a weakening of regional manufacturing competitiveness, as volumes of petrochemical raw materials, petroleum products, and ships fell sharply. Export value rose due to higher international oil prices and the high exchange rate, but the institute assessed this was merely a price effect, while actual export strength is weakening.
The institute pointed to what it called the "R.I.S.K Economy" as the reason the southeastern region was hit harder than other areas. It said the region is vulnerable to supply-chain shocks originating in the Middle East because of a complex combination of factors: a concentration of the nation's oil refining and petrochemical industries (Refining and Petrochemical Concentration), 96% import dependence on the Middle East for crude oil (Import Dependence on Middle Eastern Oil), shipping and port logistics centered on the Port of Busan (Shipping & Port Logistics Exposure), and an export-oriented industrial structure (Key Export-Oriented industry cluster).
The problem is that even if the war has effectively ended, the regional economy cannot easily recover. Restoring supply chains — including repairing crude oil production facilities, normalizing maritime transport, and readjusting insurance premiums — will require considerable time, while follow-up negotiations between the United States and Iran are expected to continue for at least 60 days. On top of this, with the "three highs" of a high exchange rate, high prices, and high interest rates converging, analysts say downward pressure on the regional economy is likely to persist in the second half.
The report called for active responses from local governments and the financial sector. It recommended prompt financial support, including emergency operating funds for affected companies, the establishment of a crisis-tiered support system, extensions of loan maturities, and the provision of foreign-exchange hedging products. For structurally vulnerable companies, it advised combining financing and consulting for business transitions with tax support to induce a soft landing. At the same time, it stressed the need to build an industrial foundation resistant to external shocks through mid- to long-term responses aimed at enhancing regional economic resilience, such as upgrading key industries, fostering AI and eco-friendly advanced industries, and expanding knowledge-based services.
Above all, the institute diagnosed that the southeastern region must break the growth pattern of "large shocks and slow recovery" that has repeated through the financial crisis and COVID-19. Assuming the national economy grows an average of 2% annually, the region would need average annual growth of 6.7% to return to the national growth trajectory within five years, or 4.3% within 10 years — underscoring the urgency of restoring the region's structural competitiveness.
"This is a time that calls for bolder and more innovative efforts to build an industrial foundation strong against crises and an economic structure with high resilience," said Baek Chung-ki, senior research fellow at the institute.
