[Editorial] Excessive Psychological Contraction Will Further Worsen the Market

The shock waves from the Middle East are becoming a reality. As international oil prices have surged past 100 dollars per barrel, the Korean economy is staggering. In early trading on the 9th, the won–dollar exchange rate spiked into the 1,490-won range, and the KOSPI plunged so sharply that a sell-sidecar was triggered right after the market opened. Risks are mounting across oil prices, exchange rates, and the stock market. Even more serious is that the country is slipping into a state of psychological panic comparable to the real economic shock.
The Islamic Republic of Iran has chosen Ali Khamenei’s second son, Mojtaba Khamenei, as its new supreme leader, signaling that it has no intention of backing down. A hard-line leadership in Iran means the Middle East crisis is unlikely to be resolved quickly. A prolonged conflict in the region could weigh on our economy for a long time, and this is no ordinary problem.
If tensions around the Strait of Hormuz escalate and armed clashes spread across the region, the global energy supply chain will fall into even greater turmoil. A spike in oil prices is not just about higher energy costs. History shows that Middle East crises have ultimately placed a heavier burden on the socially vulnerable, and that lesson must be kept in mind.
Some forecasts now warn that international oil prices could climb to 150 dollars per barrel due to the Middle East situation. This, along with reduced trade, would trigger global inflation. Surging prices hit the poor hardest and make everyday life more difficult for ordinary people. They also strain small and medium-sized enterprises and the agricultural sector, which are highly sensitive to energy costs.
All the more reason to respond with cool-headed composure. The government’s role is more important than ever. As President Lee Jae-myung of South Korea stated at the Emergency Economic Review Meeting on the 9th, the authorities must prepare preemptive measures with an extraordinary sense of urgency. First, concrete steps to stabilize oil and gas supplies and to manage volatility in financial markets must be implemented swiftly and decisively. Only a feasible and well-structured roadmap, executed systematically, will produce real results.
Trying to suppress prices directly as a way to control inflation could undermine policy credibility and create side effects. Hoarding, price gouging, and other unfair practices must be strictly policed, but in principle the government should not undermine the basic rules of a market economy.
At the same time, the government must faithfully play the role of "manager of market fear." The current turmoil in financial markets stems less from weakened economic fundamentals than from a state of psychological panic. Fear further contracts the market and sets off a vicious cycle that deepens that very fear. Consumers will cut back on spending, and companies will halt investment. Policymakers must be prepared for the worst-case scenario in which financial instability, on top of an already weak environment, ends up crushing the real economy.
We have already gone through the IMF Crisis in 1997, the Global Financial Crisis (GFC) in 2008, and the shock of the COVID-19 pandemic in 2020. Those were historical moments far more severe than the current situation. We also have experience in overcoming such major economic crises with prudence and resilience. The source of that strength was always the composure of economic actors who faced the crisis squarely without collapsing. An accurate grasp of the true nature of the crisis and well-balanced policies are the virtues most needed now.