Korea on high alert as Middle East tensions fuel oil spike, won devaluation
South Korea's market authorities are on high alert amid the escalating conflict in the Middle East region, as surging oil prices threaten the local economy, which is heavily reliant on energy imports.
Israel's threat to shut down the Strait of Hormuz, a key shipping lane for global oil and gas, has triggered concerns over oil prices, renewing inflationary pressure on Korea. Considering Korea is heavily dependent on inbound shipments of energy, inflation could quickly rebound if global oil prices rise.
'The situation remains highly uncertain following the US airstrikes and Iranian Parliament's decision to blockade the Strait of Hormuz. With international oil prices opening 2–3 percent higher today, volatility in global energy prices is expected to intensify," Acting Finance Minister Lee Hyoung-il said at a joint emergency response meeting held Monday.
'Relevant agencies should stay on high alert and closely monitor global energy prices and supply conditions,' Lee said.
The Bank of Korea also held an emergency meeting and warned against "excessive volatility in the financial and forex markets," mentioning the possibility of "market stabilization measures."
The Korean won's value per dollar depreciated as the greenback, a key safe-haven asset for global investors, strengthened in early trading, as investors sought to shield against mounting geopolitical risks.
The devaluation of the Korean won also adds pressure to inflation. A weaker won pushes up import prices, and higher energy costs elevate producer prices at plants here, which eventually feed into consumer prices.
The local currency was quoted at 1,382.48 per dollar as of 2 p.m., weakening by 8.48 won from the previous after-hours trading session. After starting daytime trading at 1,375 won, the won has further devalued against the dollar, fluctuating at the 1,380 won range.
Market analysts viewed the won could quickly depreciate to the 1,400 level per dollar.
'Amid the global appeal for safe-haven assets, the won could further lose value to the 1,400 level per dollar, depending on the path of the oil prices,' analyst Kim Sang-hoon from KB Securities said.
'If West Texas Intermediate crude trades around $85 per barrel, the won per dollar is likely to rebound to the 1,390–1,420 won range. Should WTI reach $90, the won-dollar rate could overshoot to a 1,430–1,460 won level, approaching the highs in the first quarter," Kim Ho-jung, an analyst at Yuanta Securities, said.
The benchmark Kospi remained largely flat as of press time, though it shed some of the gains from Friday when it surpassed the 3,000-point threshold, the first time in over 3 1/2 years.
The Kospi stood at 3,007.14 as of 2 p.m., down by 0.49 percent from the previous daytime trading session.
At the opening bell, the index started trading at 2,992.2, falling by nearly 30 points from the previous closing. It plunged to as low as 2,971.36 in the early hours but soon regained strength and returned to over 3,000 points shortly after noon, even briefly reaching 3,010.77 during intraday trading as of press time.
While foreign investors and institutions dumped shares worth 448 billion won and 788 billion won, respectively, retail investors held the line by scooping up 1.29 trillion won as of 2 p.m.
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