Seoul: Operation Epic Fury, launched by the United States and Israel to target Iran’s Supreme Leader Ayatollah Ali Khamenei, is causing widespread tension across the Middle East. As Iran retaliates by attacking strategic facilities in neighboring countries and proxies like Hezbollah in Lebanon and the Houthis in Yemen join the conflict, the Korean economy is facing significant challenges. The Korean stock market, heavily reliant on energy imports, experienced a sharp decline of 7.24 percent on Tuesday, marking the steepest drop in 18 months. This has affected both retail investors and President Lee Jae Myung’s efforts to boost the Korean bourse. By Wednesday, the market fell further, plummeting 12.1 percent to 5,093.54, while the Korean won weakened, trading at 1,476.2 won per dollar.
According to Yonhap News Agency, it is premature to predict if these economic indicators will have a prolonged impact severe enough to derail Korea’s target growth rate of 2 percent for the year. Historically, conflicts in the Middle East have triggered a cycle of rising oil prices, escalating consumer prices, and subsequently reduced consumption. Asian economies have been particularly vulnerable to such dynamics, prompting relevant government ministries to prepare for immediate and long-term consequences.
Oil is critical for Korea’s semiconductor and other export-driven industries, making the management of oil supply vital. Korea sources approximately 70 percent of its crude oil from the Middle East, with 95 percent passing through the Strait of Hormuz. The trade ministry recently announced that Korea’s strategic reserves can cover around 208 days of crude oil demand. However, the government must explore alternative crude sources to mitigate risks.
The Iranian Revolutionary Guard’s threat to target ships traversing the strait poses additional challenges. U.S. President Donald Trump has vowed to provide military escorts for all vessels in the region to guarantee oil flow. Despite these assurances, disruptions in the strait have pushed up Brent crude prices by 1.7 percent to $82.74 per barrel on Wednesday. Citibank’s analysis indicates that oil prices exceeding $82 could potentially shave off 0.45 percentage points from Korea’s GDP growth this year, negatively affecting both business and political environments, just as recovery seemed within reach.
Adding to the complexity is the ongoing regional strife, with Russia’s invasion of Ukraine entering its fourth year. President Trump’s comments and actions continue to inject uncertainty, as he recently suggested the Iran conflict could extend for several weeks. On his Truth Social account, Trump claimed the U.S. has “virtually unlimited supply” and that “wars can be fought ‘forever,'” countering expert analyses on U.S. munitions asymmetry against Iran’s cost-effective drones. Asian economies must prepare for a potentially prolonged Middle East conflict.
Government bodies, businesses, and the National Assembly need to collaborate to navigate these global instabilities. While the Iran conflict is a pressing concern, Korea must also address another critical issue: the threat of stronger tariffs by the Trump administration following a U.S. Supreme Court ruling against “reciprocal” tariffs. The National Assembly should promptly approve the special law supporting Korea’s $350 billion U.S. investment deal by Monday to mitigate potential trade tensions.