Shaybah oil field in Saudi Arabia. Reuters-Yonhap News
NEOM City website
Samsung Electronics (005930.KS) will use the end of the U.S.-Iran conflict as an opportunity to overhaul its mobile and home appliance businesses at its first-half global strategy meeting, which opens Monday.
According to the industry Sunday, Samsung Electronics will review its global sales strategy in response to geopolitical changes at the meeting and discuss ways to innovate marketing and distribution using artificial intelligence (AI). “We will discuss introducing AI into the global sales organization and upgrading marketing and distribution structures in preparation for market recovery after the war’s end,” an industry official said.
The U.S.-Iran war drove up international oil prices and logistics costs, increasing companies’ cost burdens. In the aftermath of the war, the Shanghai Containerized Freight Index (SCFI) surged from around 1,500 in early March to above 2,700 this month. With economic activity across the Middle East contracting and the energy-dependent European market also slowing, major companies faced inevitable disruptions to their export and sales strategies.
But as the war’s end takes hold, Samsung Electronics plans to ease cost pressures while actively expanding smartphone and home appliance sales in the Middle East market. Samsung Electronics, which leads the Middle East smartphone market, will accelerate its push into the local premium phone market with second-half new products such as the Galaxy Z Fold 8.
If Saudi Arabia’s NEOM City project returns to normal, additional business opportunities are expected to open in AI data centers and heating, ventilation, and air conditioning (HVAC). Samsung Electronics’ strategy is to respond proactively to such demand and convert it into new orders. LG Electronics (066570.KS) also plans to step up its expansion of home appliance sales in the Middle East, a key part of its “Global South” strategy. Cooperation on the data center HVAC business that it has discussed with Saudi Arabia is also expected to regain momentum.
Hyundai Motor (005380.KS) and Kia (000270.KS) will first work to normalize construction of the Hyundai Motor Saudi production subsidiary (HMMME), which had targeted operation in the fourth quarter of this year, once the Middle East situation stabilizes. HMMME is a complete knock-down (CKD) plant with annual production capacity of 50,000 units, capable of producing both electric and internal combustion engine vehicles. Once the local production system is established, it can reduce the impact of external variables such as geopolitical conflict and logistics risks and lower vehicle production costs. With normalization of passage through the Strait of Hormuz, the recovery of Middle East market performance, where Hyundai Motor and Kia exports had shown growth, is also expected to gain momentum.
The aviation industry is hoping for a recovery in business conditions and stabilization of international oil prices and exchange rates. In aviation, fuel costs account for about 30% of total costs. Because aircraft lease fees and maintenance costs are also settled in dollars, the industry has been hit directly by high oil prices and a high exchange rate. The industry expects that if the war’s end gradually stabilizes oil prices and exchange rates, cost burdens will decrease and travel and tourism demand will recover, raising the likelihood of a return to profit in the second half.
The shipping industry also welcomes the trend toward normalization of Middle East routes. If the 24 Korean-flagged vessels whose operations were restricted by the strait blockade resume operations, ship maintenance costs and insurance premium burdens can be eased. HMM’s Universal Winner, the first Korean ship to pass through the Strait of Hormuz on the 18th of last month, is reported to have paid 2 million dollars, about 3 billion won, in operating insurance premiums alone. Sales activities in the Middle East, where new bookings had been suspended, are also expected to resume gradually.
The refining and petrochemical industries are relieved by the reopening of the Strait of Hormuz and expectations of an easing of the crude oil supply crunch. However, the mood is that inventory losses from falling oil prices and short-term profitability deterioration will be hard to avoid. In fact, the domestic refining and petrochemical industries posted solid results in the first quarter of this year on rising oil prices and inventory lagging effects.
If the war’s end takes hold and oil prices fall, reverse lagging could occur instead, slowing margins. Under this structure, crude oil and naphtha bought at high prices during the war come under downward price pressure at the time of product sales after the war, increasing losses. However, since restoring energy infrastructure in the Middle East will inevitably take several months or more, crude oil supply will not surge in the short term, so a sharp drop in oil prices is analyzed to be limited.
