How South Korea Is Weathering the Iran War Oil Shock

The 2026 Iran war and the closure of the Strait of Hormuz have upended global trade and energy access, prompting governments in Asia and around the world to take measures to secure supply chains, ensure continued power generation, and stabilize domestic economies. The disruption to shipments, shortages of key materials, and substantial increases in crude oil and transportation fuel prices raise questions about the impact of the Middle East conflict on the Korean economy and whether it presents a true crisis. This report examines key indicators and signals on the impact of the Iran war on Korea’s economy and assesses the general outlook going forward.

The report, Energy Shock and Economic Resilience: South Korea and the Iran War, appears as Issue 20 in the U.S.-ROK Policy Brief series, jointly published by the George Washington University’s Institute for Korean Studies and Seoul National University’s Institute for Peace and Unification Studies.

Read the summary below, or the full report by clicking here.

Main Takeaways

Growth forecasts not immediately derailed

In the aftermath of the U.S.-Israeli strikes against Iran, the International Monetary Fund maintained Korea’s growth forecast at 1.9 percent, while the OECD marginally reduced it to 1.7 percent from 2.1 percent in its original December outlook. Annual growth figures do not appear to be in crisis mode and are likely maintained in part by Korea’s sizeable export figures. The Korean government’s USD 17.7 billion supplementary budget similarly intends to increase growth by 0.2 percent.

Economic indicators show sectoral vulnerability, but not flashing red

Year-over-year (YoY) core inflation—inflation that does not include energy and food costs—was at 2.3 percent in March, down from 2.5 percent in February (the month leading up to the strikes). Headline consumer price index (CPI) inflation stood at 2.2 percent in March, up from 2.0 percent the month before. The effects of inflation remained concentrated in the fuel and transportation sector, at 5.0 percent in March, up from 1.1 percent the month before. Meanwhile, on April 20, prices for regular gasoline in Korea were up 18.3 percent from February 28. The Korean government has instituted fuel price maximums and placed limits on the export of petroleum products, while the Korean Navy’s Cheonghae Unit is assisting Korean vessels transiting through alternative routes in the Red Sea.

The won is volatile, but capital markets show signs of promise

On March 3, the USD/KRW exchange rate surpassed 1,500 for the first time since March 2009 (the throes of the global financial crisis). This continued a persistent trend in the exchange rate negatively impacting Korea, affecting everything from public consternation over the USD 350 billion U.S.-Korea investment fund to the purchasing power of Koreans abroad. At the same time, however, Korea’s stock market still shows promise for breaking records through the end of the year, after hitting an initial record just two days before the strikes. 

Although the KOSPI fell 19.2 percent to its post-strike bottom of 5,093.54 on March 4 from its 6,307.27 high on February 26, it quickly rebounded to the 6,000-point mark in April and is projected to hit 8,000 points by the end of the year. The exchange rate issue is likely to be positively impacted by new central bank leaders in both the United States and Korea settling into their terms, possibly setting new policies toward interest rates and making progress toward eliminating the U.S.-Korea interest rate gap. The KOSPI’s success, on the other hand, demonstrates the strength of the Korean economy amid the crisis, driven by strong confidence in its semiconductor sector and other advanced industries.

The path ahead

Should the conflict remain localized, its economic impact on Korea will likely be limited to a speed bump in the country’s economic growth trajectory, rather than a full derailment. Still, it will take additional months of economic data for the effects of price increases and supply chain issues to be made fully apparent. In the interim, rather than the health of the Korean economy being the main consideration in assessing the war’s effects, Korea’s energy sources—both how they are generated and where they are sourced—may be the more significant factors to examine in judging what direction the country goes from here. 

Tom Ramage is a Fellow & Economic Policy Analyst at the Korea Economic Institute of America (KEI). The views expressed here are the author’s alone.

This material is distributed by KEI on behalf of the Korea Institute for International Economic Policy. Additional information is available at the Department of Justice, Washington, DC.