South Korea’s market authorities are on high alert amid the escalating conflict in the Middle East, as surging oil prices threaten the local economy, which relies heavily on energy imports.
Iran’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’s heavy dependence on inbound shipments of energy, inflation could quickly rebound if global oil prices rise.
“Following the US airstrikes and the Iranian parliament’s decision to blockade the Strait of Hormuz, the situation remains highly uncertain,” Acting Finance Minister Lee Hyoung-il said at a joint emergency response meeting held Monday.
“With international oil prices opening 2–3 percent higher today, volatility in global energy prices is expected to intensify. Relevant agencies must remain on high alert and closely monitor developments in 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 implementing “market stabilization measures.”
Amid heightened volatility, the Korean won depreciated against the dollar as investors flocked to the key safe-haven asset in a bid to hedge against mounting geopolitical risks.
The local currency was quoted at 1,384.3 per greenback as of the close of daytime trading, weakening by 10.3 won from the previous after-hours trading session. After starting the day at 1,375 won, the local currency quickly weakened against the dollar and fell to the 1,380 won range and continued to hover at that level throughout the day.
The weakening of the local won also adds to inflationary pressure in Korea. A weaker won pushes up import prices, and higher energy costs elevate producer prices at plants here, which eventually feed into consumer prices.
Market analysts said the won could quickly depreciate to the level of 1,400 per dollar.
“Amid the global appeal of safe-haven assets, the won could further lose value to the range of 1,400 per dollar, depending on the path of oil prices,” analyst Kim Sang-hoon of KB Securities said.
Yuanta Securities analyst Kim Ho-jung projected the won’s valuation would move in close connection with the price of West Texas Intermediate, the US crude oil benchmark. WTI traded at around $74.8 on Monday, climbing to its highest since January.
“If WTI 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 shoot up to 1,430-1,460 won level, approaching the highs of the first quarter,” Kim said.
The benchmark Kospi remained above the 3,000-point threshold, wrapping up the session at 3,014.47, down 7.37 points or 0.24 percent from the previous trading day.
At the opening bell, the index started trading at 2,992.2, shedding nearly 30 points from Friday’s close, when it surpassed the 3,000-point threshold for the first time in over 3 1/2 years.
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 an intraday-high of 3,019.81.
While foreign investors and institutions dumped shares worth 367 billion won and 951 billion won, respectively, retail investors held the line by scooping up 1.38 trillion won.
silverstar@heraldcorp.com
