Exchange rate surges to 1,466.1 won... prolonged Middle East war could push it above 1,500

According to The Financial News, uncertainty stemming from the war between the United States and the Islamic Republic of Iran is expected to shake the won–dollar exchange rate. Some analysts now warn that the rate, which had recently hovered in the relatively stable low-1,400 won range, could be pushed up toward 1,500 won.
On the 3rd, the won–dollar exchange rate on the Seoul Foreign Exchange Market closed at 1,466.1 won, up 26.4 won from the previous session. The rate opened at 1,462.3 won, a sharp jump of 22.6 won, and then fluctuated within the 1,460 won range during the session. The opening gain compared with the previous close was the largest in five months, since October 10 last year, when it rose by 23.0 won.
Market participants are increasingly concerned that this shock may not remain a short-lived event. Tensions are rising in the Middle East, pushing up international oil prices, while a stronger preference for safe-haven assets is signaling a renewed strengthening of the dollar. Higher oil prices are a particular burden for countries like South Korea that rely heavily on energy imports. As demand for dollars to pay for crude oil increases, upward pressure on the exchange rate becomes inevitable.
Park Hyung-jung, an economist at Woori Bank, assessed, "If instability in the Middle East drags on or escalates into a wider conflict, we need to consider the possibility of the rate reaching around 1,500 won." However, he added, "If the situation stabilizes in the short term, there is also a chance it could fall back to the low-1,400 won range," noting that "heightened volatility is ultimately unavoidable." He pointed in particular to potential disruptions to crude shipments through the Strait of Hormuz as the key variable. About 20% of the world’s crude oil shipments pass through this strategic chokepoint, so if supply disruptions materialize, a spike in oil prices and a simultaneous rise in the exchange rate could occur.
KB Kookmin Bank likewise projected that the path of the exchange rate will vary greatly depending on how the war unfolds. In a report, KB Kookmin Bank put the probability that the current situation will remain a short-term shock at 30%. Under that scenario, it expects the rate to move within a 1,430–1,470 won range. By contrast, in a scenario where airstrikes and retaliatory attacks continue for several weeks (50% probability), it forecasts the rate will trade between 1,470 and 1,500 won. If oil refineries in Iran and neighboring countries are hit and crude supply disruptions become prolonged (20% probability), the bank projects the rate could surge to between 1,490 and 1,540 won.
Given the nature of geopolitical risk, some degree of pullback after a sharp spike is also being discussed. Past conflict episodes originating in the Middle East have tended to trigger short-term financial market volatility, but when they did not escalate into full-scale war, markets generally stabilized relatively quickly. With the exchange rate having jumped to the mid-1,460 won range in a short period, market participants must brace for heightened swings for the time being. Baek Yoon-min, a researcher at Kyobo Securities, said, "Risk-off sentiment is emerging simultaneously across asset classes, including stocks, bonds, the dollar and gold." He added, "If geopolitical risks do not become prolonged, there is room for a partial reversal, but in the short term, investors need to focus on risk management."


imne@fnnews.com Reporter Hong Ye-ji Reporter