Won Plunges 26 Won on Iran Crisis; Analysts Eye 1,500 Level

The won-dollar exchange rate surged more than 26 won in a single day as fears of all-out war between the United States and Iran intensified. Geopolitical risks emanating from the Middle East triggered a flight to safety in foreign exchange markets, driving rapid dollar buying.

Market observers say the exchange rate ceiling should be set at 1,500 won depending on how the situation unfolds. Analysts warn that extended conflict and soaring oil prices would inevitably heighten volatility for the time being.

The won-dollar exchange rate closed at 1,466.1 won on the Seoul foreign exchange market on the 3rd, up 26.4 won from the previous trading day. This marks the highest level since 1,469.5 won recorded on February 6. The rate opened at 1,462.3 won, up 22.6 won, and climbed as high as 1,467.8 won during the session.

The surge follows the U.S. military's "Epic Fury" operation. After President Donald Trump ordered the elimination of key Iranian leadership figures, Iran's Islamic Revolutionary Guard Corps (IRGC) declared it would close the Strait of Hormuz, warning it would "burn any vessel that passes through." As tensions between the two sides escalated, safe-haven demand surged, pushing the Dollar Index (DXY), which measures the dollar's value against six major currencies, above 98.7.

Rising oil prices also fueled dollar strength. West Texas Intermediate (WTI) crude jumped more than 12% intraday to above $71 per barrel after the Strait of Hormuz—through which approximately 20% of global oil consumption passes—was blocked. Expectations that higher oil prices could increase inflationary pressure and slow the Federal Reserve's pace of rate cuts supported the stronger dollar. Foreign investors' selling of Korean equities also added upward pressure on the exchange rate.

Experts say they cannot rule out the won-dollar rate breaking through 1,500 won if the crisis extends beyond several weeks. KB Kookmin Bank estimates a 50% probability of the exchange rate reaching 1,500 won if the conflict persists for three to four weeks.

However, some suggest that intervention by foreign exchange authorities near yearly highs, along with hedging flows from the National Pension Service and dollar sales by exporters, could cap further gains.

"High volatility with significant daily swings driven by Middle East-related news flow is likely to continue for the time being," said Lee Young-hwa, economist at Busan Bank.