ED Middle East conflict impacts economy

Tankers are seen off the coast of Fujairah, United Arab Emirates, as Iran threatens to close the Strait of Hormuz amid U.S.-Israel military action, March 3, 2026. Reuters-Yonhap

Operation Epic Fury, launched by the United States and Israel to kill Iran's Supreme Leader Ayatollah Ali Khamenei, is seemingly spreading across the Middle East region. As Iran retaliates by attacking strategic facilities in nearby nations, and proxies such as Hezbollah in Lebanon and the Houthis in Yemen join the fight, a dark cloud looms over the Korean economy. As a highly energy-dependent economy, Korea's soaring stock market visibly took a hit Tuesday, falling 7.24 percent. It was the steepest drop in 18 months, hitting retail investors as well as President Lee Jae Myung's efforts to raise the value of the Korean bourse. On Wednesday, it fell more, by 12.1 percent to 5,093.54. The Korean won fell also, quoting on Wednesday at 1,476.2 won per dollar.

It may be too premature to say these alarming signs will persist to the extent that Korea will fall short of its target growth rate of 2 percent for the year.

But past conflicts that engulfed the Middle East have shown a vicious cycle of higher oil prices leading to higher consumer prices, resulting in a drop in consumption. The impact on Asian economies has been especially biting, and related government ministries must assess and brace for short-term and long-term impact.

As oil has been crucial in fueling Korea's semiconductors and other exports, managing the oil supply will be crucial. Korea sources about 70 percent of its crude oil from the Middle East, while 95 percent of it travels from the region through the Strait of Hormuz. In light of the trade ministry's announcement that the country's strategic reserves stand at approximately 208 days of crude oil demand, the government must work to tap into alternative sources for crude.

Otherwise, Korea — like many other energy-importing nations — must navigate the Iranian Revolutionary Guard's threat to attack ships that travel through the strait. U.S. President Donald Trump has said that he will provide a military escort for all ships that pass through the strait to ensure the flow of oil continues.

In the meantime, disruptions in the strait are driving up the price of Brent crude, the international standard, which rose 1.7 percent to $82.74 per barrel Wednesday. One analysis by Citibank projected that oil surpassing the $82 level could easily trim 0.45 percentage points off Korea's gross domestic product rate for the year. Such a negative effect on the Korean economy would dampen business and political sentiment after it looked poised to rebound this year.

More disconcerting is the increasing regional strife unfolding on the global landscape, as Russia's invasion of Ukraine enters its fourth year.

To the frustration of many nations, Trump continues to add layers of instability and unpredictability with his comments and actions. After saying on Monday that the Iran conflict could last up to four to five weeks, Trump posted on his Truth Social account that the U.S. has a "virtually unlimited supply" and "wars can be fought 'forever.'" While that comment seems intended to rebuff the negative analysis by experts that U.S. munitions face an asymmetry against Iran's relatively cheaper drones, Asian economies should brace for the possible prolonging of the Middle East conflict.

All parties — the government, businesses and the National Assembly — must join together to ride out multiple global instabilities. The Iran conflict may overshadow other issues for now, but there is another flash point in global trade that Korea has to tackle: the stronger tariffs threatened by the Trump administration in the wake of the U.S. Supreme Court ruling against his "reciprocal" tariffs. In that regard, the National Assembly should move fast to approve by Monday the special law to support Korea's $350 billion U.S. investment deal reached last year.