Escalating military tensions between the United States and Iran are sending shockwaves through both global oil markets and foreign exchange markets. The key concern for investors is not simply the conflict itself, but how long energy supply risks around the Strait of Hormuz could persist. As one of the world’s most critical chokepoints for oil shipments, instability in the Strait immediately raises concerns over supply disruptions—fueling oil price increases and triggering broader risk-off sentiment across global markets.
International crude prices have already responded sharply to the geopolitical premium. Brent crude recently climbed into the low-to-mid $80 per barrel range, and several investment banks have warned that prices could rise toward $90 or even higher if the tensions persist. Market participants are increasingly focused not just on short-term price spikes but on structural supply risks such as shipping disruptions, higher insurance costs, and longer trade routes that could embed higher energy costs into the global economy.
Asian Currencies Face Greater Pressure
The economic impact of the crisis is likely to fall more heavily on Asia. According to the U.S. Energy Information Administration (EIA), more than 80% of the crude oil and condensate transported through the Strait of Hormuz is destined for Asian markets. China, India, South Korea, and Japan are among the largest importers, making them particularly vulnerable to supply disruptions originating in the Middle East.
South Korea is no exception. As a major energy-importing economy, the country imports roughly 2.7 million barrels of crude oil per day. If global oil prices rise by $10 per barrel, South Korea’s annual oil import costs could increase by more than $10 billion. Such an increase would likely worsen the country’s terms of trade and place downward pressure on its current account balance.
South Korea’s economy has recently benefited from a strong rebound in semiconductor exports, which helped push the country’s current account surplus to around $120 billion in 2025. However, a prolonged rise in oil prices could narrow that surplus as energy import costs increase, weakening one of the key fundamental supports for the Korean won.
Risk Premium Expands in the FX Market
Signs of this pressure are already visible in the foreign exchange market. Among major Asian currencies, the Korean won has shown relatively larger volatility in recent weeks. As geopolitical tensions intensified, global investors reduced exposure to risk assets, triggering capital outflows from the Korean equity market. This shift has increased demand for the U.S. dollar and added upward pressure on the dollar–won exchange rate.
Market participants increasingly believe that the recent movements in the exchange rate are being driven less by domestic economic fundamentals and more by geopolitical risk and shifts in global capital flows. During periods of heightened uncertainty, investors tend to move funds toward traditional safe-haven assets such as the U.S. dollar and U.S. Treasury bonds.
Price Scenarios Could Shape the Currency Path
Looking ahead, the trajectory of the dollar–won exchange rate will largely depend on the path of global oil prices and the duration of geopolitical tensions.
If Brent crude stabilizes in the $80 range, the upward pressure on the exchange rate could gradually ease. However, if oil prices rise toward $90 per barrel, the growing burden of energy imports could push the won to trade at structurally weaker levels than previously expected. Should oil prices exceed $100, inflation concerns could intensify globally, potentially delaying expected interest rate cuts and reinforcing dollar strength.
WGBI Inclusion May Provide a Buffer for the Won
There are, however, some supportive factors for the Korean currency this year. South Korean government bonds are scheduled to be gradually included in the World Government Bond Index (WGBI) beginning in April. The inclusion could attract additional foreign investment into Korea’s bond market.
That said, many analysts view the index inclusion not as a decisive turning point for the currency but rather as a stabilizing buffer against excessive volatility in the foreign exchange market. Since the inclusion will be phased in over roughly eight months, capital inflows are expected to occur gradually rather than all at once.
Energy Risk Remains the Central Variable
Ultimately, the most critical factor shaping the currency outlook is not necessarily whether the Middle East conflict escalates militarily, but whether the global energy supply chain is materially disrupted.
If shipping flows through the Strait of Hormuz remain stable, market tensions could ease relatively quickly. But if disruptions to shipping routes, rising insurance premiums, or forced detours for oil tankers begin to materialize, volatility in both oil and currency markets could persist for an extended period.
For many analysts, the current situation highlights once again how deeply energy markets and financial markets are interconnected. For energy-import-dependent economies in Asia, the crisis may serve as a reminder that exchange rate stability and trade dynamics remain highly sensitive to shocks in the global energy supply system.
