Seoul: The fallout from the escalating war between the United States and Iran is wreaking havoc on Korea's economy, with immediate effects already visible in its financial markets. On Wednesday, the Kospi index plummeted over 12 percent, even after trading was temporarily halted by a sidecar mechanism. Over the past two days, the index has suffered a near 20 percent decline. On the New York Stock Exchange the previous night, the won-dollar exchange rate surged above 1,500 won, marking the first time in 17 years this level was breached. Gasoline prices have also risen sharply, surpassing 1,800 won per liter ($4.62 per gallon). If the conflict worsens, Korea could face a crisis characterized by high exchange rates, soaring oil prices, and rising inflation. Immediate action is required to prevent these "three highs" from spreading.
According to Yonhap News Agency, the situation is particularly precarious around the Strait of Hormuz, a critical chokepoint for global energy supplies. The situation has escalated following Iranian attacks that set 10 oil tankers ablaze, prompting speculation that the U.S. Navy might escort vessels through the area. Currently, 26 Korean tankers are stranded near the strait. As the world's seventh-largest consumer of crude oil, Korea relies on imports for over 90 percent of its energy needs. Approximately 70.7 percent of imported crude oil and 20.4 percent of liquefied natural gas pass through the Strait of Hormuz. Though Korea has oil reserves sufficient for about six months, those reserves would be exhausted if this vital shipping route were obstructed.
The continuation of the Middle East conflict poses increasing risks to Korea's real economy, a challenge that comes at a time when the nation was anticipating economic recovery driven by robust exports. Iran's drone attacks on U.S. military facilities in Persian Gulf countries have heightened concerns for Korean businesses in the region. More than 140 Korean companies are engaged in projects worth around 100 trillion won ($67.6 billion) in the Middle East, including Saudi Arabia's Neom city development and various nuclear power and artificial intelligence infrastructure projects.
The potential disruptions to logistics also threaten Korea's major exports, such as automobiles, smartphones, and cosmetics. Despite the gravity of the situation, the "F4" macroeconomic and financial policy meeting, led by the finance minister and deputy prime minister, has yet to be convened. The government has previously advocated for stock investment, despite repeated media warnings about the risks of excessive borrowing for share purchases.
As market panic intensifies and concerns grow over heavily leveraged investment accounts, officials maintain that foreign exchange reserves remain adequate. However, given the severity of the crisis, the government should act with greater urgency and implement an emergency response system. Above all, policymakers must ensure that financial instability does not spread to the real economy.