International oil prices breached the psychological barrier of $100 per barrel on the 9th amid the fallout from the escalating Middle East war, briefly approaching the $120 level.
Iran elected Mojtaba Khamenei, the second son of Ayatollah Ali Khamenei who was killed in a U.S. airstrike, as its new Supreme Leader, signaling its determination to fight to the end. Meanwhile, U.S. President Donald Trump stated that "there will be no negotiations without unconditional surrender," raising concerns about a prolonged conflict.
Analysts warn that if Iran's blockade of the Strait of Hormuz and production cuts by Middle Eastern oil-producing nations continue, international oil prices could soon reach $120 per barrel. There is growing concern that South Korea's economy, which has barely returned to a growth recovery trajectory, may be engulfed by fears of stagflation.
The KOSPI plunged 5.96% on the day, while the won-dollar exchange rate closed at 1,495.5 won, marking the highest level since the global financial crisis. The high oil price shock has hit financial markets and threatens to spread to the real economy.
During the 2022 Ukraine war, annual inflation reached the 5% range. South Korea has the highest external energy dependence among developed nations. Prolonged high oil prices raise concerns about inflation, won depreciation, deteriorating corporate earnings, and foreign investment outflows. This year's growth rate is likely to fall short of the Bank of Korea's forecast of 2%.
Following the aviation and logistics sectors, other core industries such as petrochemicals and semiconductors that depend on Middle Eastern raw materials are anxious about expanding damage. Moreover, if the Middle East crisis reduces global trade volumes and disrupts supply chains, exports overall will suffer significant damage.
The government must prepare preemptive countermeasures with extraordinary resolve, keeping the worst-case scenario in mind as directed by President Lee Jae-myung. It should activate various contingency plans based on a baseline scenario of a prolonged Middle East war.
Centered on a government-wide emergency response system, authorities need to ensure thorough management of energy supply and demand, financial market stability, and price controls, while taking bold measures such as expanding fuel tax cuts. Above all, the government must mobilize all policy capabilities to minimize damage to the real economy, including providing comprehensive financial and tax support for export companies.
This should also accelerate the restoration of the nuclear power ecosystem through small modular reactors and new large-scale nuclear plant construction for energy independence, along with diversification of energy imports.