SEOUL, Mar 03 (AJP) - Oil supply disruption following the closure of the Strait of Hormuz — the critical artery through which most Middle Eastern crude flows to Asia — is raising fears of another wave of currency volatility and fuel-driven inflation, analysts warned.
Iran’s Revolutionary Guards declared the waterway shut, threatening to “set on fire” vessels entering waters bordering Iran. The strait handles roughly 20 percent of global oil supplies and about 80 percent of crude bound for Asia, including South Korea.
East Asia remains heavily dependent on Middle Eastern crude. South Korea, alongside Japan, stands out for its high concentration risk and limited import diversification.
According to the Korea International Trade Association (KITA), crude imports from five countries — Saudi Arabia, Kuwait, the United Arab Emirates, Qatar and Iraq — accounted for 69 percent of South Korea’s total oil imports in January. Saudi Arabia alone represented nearly half of that volume.
Compounding tensions, Iran launched a drone attack on Saudi Aramco’s largest refinery in Ras Tanura. Although Saudi forces intercepted the drones and prevented severe structural damage, fires in the vicinity forced a temporary suspension of operations.
Markets reacted immediately.
While the UAE suspended Dubai crude trading, Brent crude futures — the global benchmark substitute — surged 8.11 percent on Sunday to $78.36 per barrel. As of 3 p.m. Tuesday, Brent climbed further to $81.24, nearly 30 percent above the $60 range where prices hovered at the start of the year.
Oil prices exert a defining influence on consumer inflation. When Dubai crude surpassed $100 per barrel during the Arab Spring uprisings, South Korea’s inflation rate climbed toward 4 percent.
Fuel prices are already responding.
Gasoline prices in Seoul, which stood at 1,749.65 won ($1.20) per liter last Saturday, rose to 1,768.38 won by March 2 — an increase of more than 1 percent in just three days. Given the typical lag in retail price adjustments, further increases are widely expected.
“A 10 percent rise in international oil prices is estimated to lift South Korea’s CPI growth by approximately 0.22 percentage points,” said Kwon Hee-jin, a researcher at KB Securities.
Kwon also warned of prolonged instability, noting that unlike Venezuela’s internal collapse, Iran retains strong hardline political and military backing — raising the risk of sustained conflict.
Seoul markets suffered one of their steepest declines in recent years.
The KOSPI plunged 452.22 points, or 7.24 percent, to close at 5,791.91 — marking one of its sharpest single-day losses.
The stock and bond markets both endured heavy selling despite Financial Services Commission Chairman Lee Eog-weon’s pledge Sunday to deploy more than 100 trillion won in market stabilization funds.
The Korean won slid 2.9 percent from Friday’s close to 1,467.50 per U.S. dollar on Tuesday, reflecting intensifying capital outflows.
The bond market also turned volatile. The three-year government bond yield surged 13.9 basis points to 3.180 percent, while the 10-year yield climbed 14.8 basis points to 3.594 percent — the largest increase since Jan. 20, when yields spiked following President Lee Jae Myung’s signal of a supplementary budget.
The sharper rise in short-term yields relative to long-term rates suggests heightened sensitivity to inflation and exchange-rate risks, while also signaling that expectations for further Bank of Korea rate cuts are fading.
Safe-haven dynamics were mixed.
Gold prices surged past $5,400 per troy ounce as of Sunday, while the Dollar Index rose for three consecutive sessions to 98.42. Yet U.S. Treasury yields moved higher instead of falling, with the 10-year yield jumping 9.3 basis points to 4.036 percent overnight — reflecting investor bets that surging oil prices will reignite inflation.
The Bank of Korea’s New York office noted that the likelihood of a near-term Federal Reserve rate cut has “virtually disappeared,” limiting room for the BOK to pursue its own easing cycle.
“With short-term inflation expected to rise, it will be difficult for the Fed to maintain accommodative policies,” the BOK’s New York desk said, pointing to unusual weakness in U.S. Treasuries.
Meritz Securities researcher Lee Seung-hoon warned that the upper bound for the U.S. 10-year yield could extend toward 4.5 percent, with Korea’s 10-year yield potentially approaching 4 percent.
“Bond investors are selling on inflation sensitivity rather than rotating into safe havens,” Lee said.
Some analysts, however, remain skeptical that the crisis will become protracted.
“If the Strait of Hormuz remains closed for an extended period, pressure from China — one of Iran’s key economic partners — will intensify,” Lee said, predicting Iran may ultimately de-escalate.
Ahn Hyun-kook, a researcher at Hanwha Investment & Securities, drew parallels to last year’s tariff escalation.
“During the tariff war, President Trump stepped back when market reactions exceeded expectations,” Ahn said. “While Trump may hold leverage on tariffs, he does not control oil prices in the same way.”
The Bank of Korea’s London office also assessed that high-intensity combat could conclude within one to two weeks, citing constraints on ammunition reserves on both sides — shorter than earlier projections of four to five weeks.
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