ADB Economist Warns Prolonged High Oil Prices Could Drag South Korea Growth

Albert Park, chief economist at the Asian Development Bank, warned that prolonged disruption to energy supply chains from the Middle East conflict could keep oil prices elevated and weigh on South Korea’s economy.

Speaking at a press briefing May 4 (local time) in Samarkand, Uzbekistan, Park said that even if the conflict ends, rebuilding damaged energy infrastructure could take years, locking in a “higher-for-longer” oil-price environment. Under that scenario, South Korea’s economic growth would be estimated to fall by 0.9 percentage points in 2026 and 0.5 percentage points in 2027. In April, the ADB projected South Korea’s growth at 1.9% in both 2026 and 2027.

In a new baseline scenario, the ADB forecast average oil prices of $96 a barrel in 2026 and $80 in 2027. “This is not simply a matter of passing through a strait,” Park said, adding that key infrastructure for global production capacity has been damaged and could take three to five years to restore.

Park said South Korea is a concern because it relies more heavily on energy imports than other Asian economies. He also warned of stronger upward pressure on inflation as higher energy costs spill over into other prices.

Park said strong first-quarter semiconductor exports could partly offset slower growth, but he cautioned that Middle East-related disruptions in raw materials could also hinder expanded chip production. “Overall, the growth forecast is more likely to be revised downward,” he said.

He stressed that the estimates were not an official revision to the ADB’s forecast. The figures, he said, were meant to gauge the pure impact of a negative external shock from the Middle East crisis, and actual growth could vary depending on offsetting factors such as semiconductor exports. The ADB plans to release an updated outlook for South Korea in its July ADO update, reflecting both chip performance and developments in the Middle East.

On policy, Park advised against broad subsidies, saying they tend to concentrate benefits among higher-income households and increase fiscal burdens. Instead, he said, governments should allow higher energy prices to signal consumers and businesses to improve efficiency, while targeting support precisely to vulnerable groups. He also urged central banks to closely monitor second-round inflation effects, but not to raise rates too early in ways that could curb investment and growth.

Park offered a positive view of the current semiconductor cycle, saying it is being driven by artificial intelligence. If AI delivers real productivity gains, he said, the cycle could have a relatively “long life.” Still, he noted data suggesting up to eight key materials used in semiconductor production are supplied from the Middle East, and warned that prolonged conflict could lift prices or disrupt supplies, limiting production expansion even if global demand remains strong.

The briefing also addressed international use of the Korean won. Yuji Yamashita, an ADB official who attended with Park, said that “true” won internationalization should look beyond its use in payments for goods and services and include government bonds. He said Korean government bonds have become a liquid and trusted asset for global investors after being added to the World Government Bond Index. If those bonds can be used as collateral in cross-border transactions, he said, investors may view the currency and bonds as a package, expanding the won’s role beyond trade into broader financial transactions.



* This article has been translated by AI.

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