The intensifying turmoil in Libya and the Middle East is feared to serve a major blow to the Korean economy and its firms doing business in the region.

Korean builders seem to be hit hardest by the political crisis as most of their projects there have been put on hold and workers have fled Libya during the past week.

Local firms’ unpaid fees from their Libyan partners have reached about $19 million, according to state-run Korea Trade-Investment Promotion Agency.

The government, meanwhile, is worried over the country’s oil price as it imports all of its domestic supply, 82 percent of which comes from the Middle East. Due to its dependence on oil imports, the local economy tends to be volatile to international crude prices.

A 10 percent increase in the crude oil price may raise the year’s consumer prices by 0.12 percentage points and bring down private consumption and total investments by 0.12 percentage points and 0.87 percentage points, respectively, the Korea Development Institute said.

This could also cut the country’s trade surplus by $200 million and gross domestic product by 0.21 percent point, KDI added.

Seoul has thus been mulling contingency plans covering oil supply, financial markets and inflation to minimize the economic fallout from growing unrest in the Middle East.

As well as monitoring the situations in North Africa and Middle East via a special emergency team since Feb. 23, the finance ministry said Sunday it may cut fuel taxes should the Dubai oil price stay above $130 per barrel, and boost oil imports from Russia.

The price of benchmark Dubai crude oil has been topping the $100 per barrel mark for the past week on news that Libya cut its daily oil production from 1.6 million to 400,000 barrels. It marked $107.01 per barrel on Friday.

President Lee Myung-bak called on his government Monday to deal with current economic troubles with the spirit it exhibited when it weathered the 2008-2009 global financial crisis, according to Lee’s office Cheong Wa Dae.

Korean builders, which have been seeking increasing presence in the Middle East market, actively participating in the country’s social overhead capital projects, are being struck hard by the Libyan unrest, according to industry insiders.

Last year alone, Korea won nine contracts worth $2 billion in Libya, making it one of the biggest foreign players outside of the oil market which produces most of the country’s wealth. A total of 24 Korean builders are working in Libya, hiring 22,000 employees including 1,300 Koreans.

Uncertainties still remain in the region although they say they are not yet seriously worried about the situation at the moment as Libya and Egypt are not major overseas markets and that they have solid business networks there.

Firms particularly fear that their businesses in the regions will be affected by a prolonged crisis which may be broadened to Saudi Arabia and the United Arab Emirates in the near future, they said.

The Korea Institute for International Economic Policy said in a report released on Feb. 23 that Korea should also pay attention to situations in Saudi Arabia, Oman, Kuwait, UAE and Qatar, though these countrys have previously been considered politically stable.

International sanctions against Libya led by the United Nation and U.S. could also burden builders.

The U.N. Security Council on Saturday agreed to impose sanctions on Moammar Gadhafi, his immediate family and 10 top associates in an attempt to halt the violent reaction to antigovernment protests in Libya.

It also approved an embargo on arms shipments to Libya and the hiring of mercenaries and referred the crackdown on protesters to the International Crime Court.

The U.S. and European nations are pushing for financial sanctions on Gadhafi, blocking all his assets outside his country, which may result in a failure for Korean firms to receive fees from their Libyan partners.

Experts also predict that Korea will shortly be pressured to join its U.S. and European partners in taking such measures on Libya, and that they will consequently affect the North African nation’s influence on Korean firms.

Beginning with Samsung C&T Corp., which was first to enter the untapped market in 1977 by building houses in the country, local builders also including Hyundai Engineering & Construction Co. and Daewoo E&C have been seeking expansion there.

By Koh Young-aah (youngaah@heraldcorp.com)