Fears of economic shock for Korea rise as Iran threatens Hormuz blockade

Indeed South Korea relies on the Strait of Hormuz for 99-percent of its crude oil from the Middle East.

Accordingly Iran's intentions to close the channel is causing much concern here in the country.

Shin Se-byuck has details

Tensions are rising in the Middle East, with growing fears over the potential fallout for South Korea's economy.

On Sunday, Iran announced it would move to block the Strait of Hormuz in response to a U.S. strike on its nuclear facilities.

The Strait of Hormuz is a narrow sea passage connecting the Persian Gulf and the Gulf of Oman.

It plays a vital role in global energy flows, with roughly 20 to 25 percent of the world's crude oil exports and around 20 percent of LNG shipments passing through it.

A full blockade would disrupt global energy supply chains and send shockwaves through oil markets, hitting energy-dependent economies like South Korea especially hard.

According to the Korea Trade-Investment Promotion Agency, 99 percent of Middle Eastern crude imported to Korea travels through the Strait of Hormuz.

An expert warned that if Iran's response escalates, the price of oil hitting the 100-dollar per barrel mark would only be "a matter of time," raising concerns about broader market volatility.

"The bigger risk is not just rising oil prices, but how long the stock market stays under pressure. A severe drop in Korean and global stocks could have an even greater impact on the economy."

He also pointed to the currency market, saying the Bank of Korea may face limits on policy flexibility.

"If the won weakens to 1,450 or even 1,500 per dollar during a prolonged crisis, the central bank simply won't be able to lower rates without fueling further currency instability."

A prolonged military standoff between the U.S., Israel, and Iran could also drag Korea's economic growth well below current projections.

The Bank of Korea's latest forecast, released late last month, projected economic growth of zero-point-8 percent for this year.

That would be the lowest in five years, excluding major crisis periods like the COVID-19 pandemic or past financial shocks.

But since the forecast was issued before the U.S. strike, the risk of a deeper downturn remains.

Meanwhile, with uncertainty mounting, the government held an emergency inter-agency meeting on Monday.

It says it will crack down on unfair oil price hikes and keep domestic fuel prices in check.

Authorities also plan to closely monitor financial markets and act quickly if volatility spikes.

Key sectors like finance, energy, trade, and logistics will be watched around the clock, with swift responses to any unexpected developments.

Shin Se-byuck, Arirang News.