The Koreas | Economy | East Asia

The Economic Consequences of the Iran War Reverberate in South Korea

It’s not just energy: South Korea’s stock market, industrial supply chains, and export markets have all been impacted.

Iran may be geographically distant from South Korea, but in an interconnected world the consequences of wars are no longer local. Their economic effects ripple across regions, especially for highly integrated global economies such as South Korea. While the disruption to energy supplies from the war has been a concern, shocks to interconnected supply chains for industrial inputs and exports are also placing pressure on the economy.

The most immediate consequences of the Israeli-U.S. decision to attack Iran have been felt in South Korea’s domestic stock market, foreign exchange rate, and prices. The KOSPI, South Korea’s main stock index, suffered its largest ever decline when markets opened after the war began, falling a total of 18 percent over first two days of the war. KOSPI has since partially recovered but remains 13 percent below its pre-war value with the war in its fourth week.

Concerns about the broader impact on the Korean economy have driven the won to levels not seen since the Global Financial Crisis. In recent trading, it has hovered around 1,500 won to the U.S. dollar. The decline in the won adds to inflationary pressures as energy and other input prices rise due to tightening supply. Some of this may be offset by increased price competitiveness for South Korean exports. 

With concerns growing about price gouging, Seoul has taken the extraordinary step of imposing price caps on refined petroleum products for the first time since 1997, while also establishing price monitoring for 23 essential items to prevent excessive price hikes. 

If the war is relatively short, each of these pressures is manageable. However, should the conflict persist for up to three months it would likely decrease South Korea’s growth rate by 0.3 percent. 

The longer the war drags on, the greater the odds that the South Korean economy enters a period of stagflation – stagnating economic growth and higher inflation. An extended war also increases the potential for negative shocks from supply chain disruptions and declining exports. Should the conflict persist for a year, it would likely push South Korea’s growth rate to zero. 

While the Middle East only account for roughly 3 percent of exports, the region is a significant market for certain firms, and slowing global economic growth would reduce demand for South Korean exports more broadly. 

South Korea’s Exposure to Middle East Energy Market Disruptions

Pressures on South Korea’s stock market, the won, and prices are being driven by the disruption to petroleum and LNG exports from the Middle East. South Korea imports 62 percent of its petroleum from inside the Strait of Hormuz, while 20 percent of its LNG comes from the region. Early estimates form the International Energy Agency (IEA) expect overall global oil production to decline by 8 million barrels per day in March, or 7 percent of production, while Goldman Sachs estimates that the disruption to Qatar’s LNG production has pulled 19 percent of the world’s total production offline. 

Because of South Korea’s lack of domestic petroleum and gas reserves, it maintains a strategic stockpile equivalent to over 200 days of petroleum. In coordination with the IEA, Seoul plans on releasing 22.46 million barrels of oil from its strategic reserve as part of a larger international effort to bring additional supply to markets and stabilize prices.

It is less clear, however, how sufficient South Korea’s LNG reserves are. Regulations require South Korea to maintain nine days’ worth of supply, but the government indicated that it has significantly more. This could become a more serious issue, as recent Iranian strikes on Qatar are reported to have caused damage that will keep 17 percent of Qatari production offline for three to five years.

Rising prices and shortages of fuel oil, which powers container ships, and jet fuel are also impacting South Korea. Fuel oil prices have increased by 87.5 percent since the beginning of the war. Jet fuel prices have also surged. Higher fuel costs, combined with the weakening won, are hitting the airline industry particularly hard: jet fuel prices have doubled and Korea Air has tripled its fuel surcharge on some routes. 

South Korea is taking steps to manage energy shortages and rising prices. As one of the region’s major refiners of crude petroleum products, Seoul has capped exports of gasoline, kerosene, and diesel at 2025 monthly levels in an effort to manage domestic supplies. South Korea has also raised production caps on nuclear and coal power plants to ease any disruption to electricity production from LNG shortages. Lastly, the government is taking steps to ease the burden of energy cost increases on the public.  

Supply Chain Disruptions Extend Beyond Energy 

The Middle East’s role in global energy production is the focus of much of the world’s attention, especially now that Iran has confirmed its intention to essentially keep the Strait of Hormuz blocked. However, other key inputs for the South Korean economy are produced in the Middle East. In a list of 41 key items for South Korea’s industrial supply chains, 70 percent were supplied by imports from the Middle East, particularly Turkiye, Saudi Arabia, and Israel.

One of the most immediate concerns is the supply of naphtha, the core feedstock for South Korea’s petrochemical sector, which generates roughly 7 percent of the country’s exports. Shortages of naphtha and propylene have already forced LG Chem to declare force majeure on exports of dioctyl terephthalate, a key plasticizer used in a range of thermoplastic products. Even basic goods such as plastic trash bags are now facing production delays. Yeochun NCC has also declared force majeure, and Lotte Chemical and other major producers warn they may have to follow if supply constraints persist. And the South Korean government has now placed restrictions on the export of this critical input.

The disruption in naphtha extends to high-value industries like automotives, healthcare, shipbuilding, and consumer industrial goods. Naphtha is used to produce ethylene, which is used in a wide variety of parts in the the automotive industry. The healthcare industry uses ethylene to produce medical grade plastics, while the shipbuilding industry uses it to cut steel plates. It is also used to produce polypropylene and acrylonitrile butadiene styrene, which are used in the production of washing machine components.

The cascading impact across both high‑value and everyday products underscores how quickly South Korea’s industrial base can be strained by disruptions in petrochemical feedstocks. South Korea imports upwards of 70 percent of its naphtha from the Middle East. Prior to the Ukraine war, South Korea imported 26 percent of its naphtha from Russia, but quickly phased those imports out and became more dependent on the Middle East. With shortages impacting production, South Korean firms are pushing the government to explore resuming imports from Russia.

Risks for the Semiconductor Industry

The war with Iran is also disrupting the semiconductor supply chain, including supplies of helium, bromine, sulfuric acid, aluminum, and some specialized semiconductor equipment. South Korea largely sources its sulfuric acid and aluminum from non-Middle Eastern countries, but 97.5 percent of its bromine is imported from Israel, 64.7 percent of its helium from Qatar, and a significant portion of measurement and inspection equipment is produced in Israel. Semiconductor firms have reserves of helium and there was a market surplus when the war began, lessening immediate concerns, while bromine can potentially be sourced domestically. However, these are risk areas for the semiconductor industry should the war persist.

South Korea’s semiconductors industry’s risk extends beyond domestic production. The primary export market for high-bandwidth memory (HBM) – the specialized memory used in AI chips – is Taiwan, where HBM is integrated into Nvidia AI chips. In 2025, Taiwan generated 53.3 percent of its electricity from LNG. It has adequate supplies through the end of April, but will likely face shortages then. Even if the war ends soon, it will take months to return for LNG shipments to return to normal. Damage to LNG facilities in Qatar will shave a minimum of 3 percent off this year’s production. When Samsung’s fab in Austin, Texas fab faced power constraints due to a bad storm, it remained idle for weeks. Taiwan’s ability to turn to alternative sources of energy will determine if TSMC’s facilities could face a similar situation, depressing demand for HBM.

These risks also extend to China, where Samsung and SK Hynix have significant production facilities. China produces some materials such as sulfuric acid, but similar to South Korea is highly dependent on Israel for bromine. China’s ability to manage access to these and other inputs for the semiconductor supply chain that run through the Middle East is an additional factor for South Korean firms.   

The Iran war could also reduce demand for semiconductors. AI data centers in the Middle East have come under attack, with banking and payment services disrupted after an Amazon data center was hit in the UAE. The Middle East was set to be a key region for the deployment of AI infrastructure, but the heightened security risks could either delay some deployment or push firms to reconsider their plans in the region – either of which would reduce demand for South Korean HBM.

Korean Exports to the Middle East

Although only 3 percent of South Korea’s exports go to the Middle East, the region is an important market for certain industries. For example, Hyundai Motor Group – the Hyundai, Kia, and Genesis brands – accounts for 15 percent of automotive sales in the Middle East and  the region accounts for 10 percent of Hyundai Motor Group’s global sales. Increased shipping costs from rising fuel costs and extended routes due to the closure of the Strait of Hormuz will impact profitability, while the war’s impact on the region could reduce demand at a time when Hyundai is already dealing with tariffs from the United States.  

The automotive industry is not the only South Korean industry with significant exports to the Middle East. Exports of K-beauty products to the region reached $350 million last year. While not on the scale of exports to the United States or China, there was significant growth in K-beauty exports to the Middle East prior to the war. The region is likewise a strong growth market for K-foods, with $410 million in exports last year. The closure of the Strait of Hormuz is also affecting exports to some European markets.

The conflict also affects electronics exports. Samsung accounts for 52.6 percent of the region’s OLED TV market, as well as 36 percent of its smartphone sales. LG Electronics holds the second-largest share of the TV market and competes with Samsung for the top two spots in home appliances.

What the War Means for South Korea

The war’s ultimate impact on South Korea will hinge on its duration and the scale of supply disruptions, but the early shocks already reveal deeper structural vulnerabilities. South Korea’s exposure is not simply a function of its reliance on Middle Eastern energy; it reflects a broader concentration of critical inputs – petrochemical feedstocks, semiconductor materials, and specialized equipment – within a small number of suppliers and transit routes. The closure of the Strait of Hormuz and the damage to LNG infrastructure in Qatar have underscored how quickly these chokepoints can translate into economy‑wide pressures.

If the conflict continues, higher energy costs, petrochemical shortages, and semiconductor supply risks could reinforce one another, slowing growth and weakening export performance at a time of broader global uncertainty. Each dependent not just on supplies from the Middle East, but how global markets react and adapt to shortages.

Even if the conflict ends relatively soon, the disruptions highlight the need for more diversified sourcing of critical inputs, greater redundancy in energy and materials supply chains, and closer coordination with international partners to manage future shocks. After a series of disruptions in recent years from the pandemic and Russia’s invasion of Ukraine, the conflict in Iran reinforces the need to continue efforts to improve supply chain security.

Get to the bottom of the story

Subscribe today and join thousands of diplomats, analysts, policy professionals and business readers who rely on The Diplomat for expert Asia-Pacific coverage.

Get unlimited access to in-depth analysis you won't find anywhere else, from South China Sea tensions to ASEAN diplomacy to India-Pakistan relations. More than 5,000 articles a year.

Unlimited articles and expert analysis

Weekly newsletter with exclusive insights

16-year archive of diplomatic coverage

Ad-free reading on all devices

Support independent journalism

Already have an account? Log in.

Iran may be geographically distant from South Korea, but in an interconnected world the consequences of wars are no longer local. Their economic effects ripple across regions, especially for highly integrated global economies such as South Korea. While the disruption to energy supplies from the war has been a concern, shocks to interconnected supply chains for industrial inputs and exports are also placing pressure on the economy.

The most immediate consequences of the Israeli-U.S. decision to attack Iran have been felt in South Korea’s domestic stock market, foreign exchange rate, and prices. The KOSPI, South Korea’s main stock index, suffered its largest ever decline when markets opened after the war began, falling a total of 18 percent over first two days of the war. KOSPI has since partially recovered but remains 13 percent below its pre-war value with the war in its fourth week.

Concerns about the broader impact on the Korean economy have driven the won to levels not seen since the Global Financial Crisis. In recent trading, it has hovered around 1,500 won to the U.S. dollar. The decline in the won adds to inflationary pressures as energy and other input prices rise due to tightening supply. Some of this may be offset by increased price competitiveness for South Korean exports. 

With concerns growing about price gouging, Seoul has taken the extraordinary step of imposing price caps on refined petroleum products for the first time since 1997, while also establishing price monitoring for 23 essential items to prevent excessive price hikes. 

If the war is relatively short, each of these pressures is manageable. However, should the conflict persist for up to three months it would likely decrease South Korea’s growth rate by 0.3 percent. 

The longer the war drags on, the greater the odds that the South Korean economy enters a period of stagflation – stagnating economic growth and higher inflation. An extended war also increases the potential for negative shocks from supply chain disruptions and declining exports. Should the conflict persist for a year, it would likely push South Korea’s growth rate to zero. 

While the Middle East only account for roughly 3 percent of exports, the region is a significant market for certain firms, and slowing global economic growth would reduce demand for South Korean exports more broadly. 

South Korea’s Exposure to Middle East Energy Market Disruptions

Pressures on South Korea’s stock market, the won, and prices are being driven by the disruption to petroleum and LNG exports from the Middle East. South Korea imports 62 percent of its petroleum from inside the Strait of Hormuz, while 20 percent of its LNG comes from the region. Early estimates form the International Energy Agency (IEA) expect overall global oil production to decline by 8 million barrels per day in March, or 7 percent of production, while Goldman Sachs estimates that the disruption to Qatar’s LNG production has pulled 19 percent of the world’s total production offline. 

Because of South Korea’s lack of domestic petroleum and gas reserves, it maintains a strategic stockpile equivalent to over 200 days of petroleum. In coordination with the IEA, Seoul plans on releasing 22.46 million barrels of oil from its strategic reserve as part of a larger international effort to bring additional supply to markets and stabilize prices.

It is less clear, however, how sufficient South Korea’s LNG reserves are. Regulations require South Korea to maintain nine days’ worth of supply, but the government indicated that it has significantly more. This could become a more serious issue, as recent Iranian strikes on Qatar are reported to have caused damage that will keep 17 percent of Qatari production offline for three to five years.

Rising prices and shortages of fuel oil, which powers container ships, and jet fuel are also impacting South Korea. Fuel oil prices have increased by 87.5 percent since the beginning of the war. Jet fuel prices have also surged. Higher fuel costs, combined with the weakening won, are hitting the airline industry particularly hard: jet fuel prices have doubled and Korea Air has tripled its fuel surcharge on some routes. 

South Korea is taking steps to manage energy shortages and rising prices. As one of the region’s major refiners of crude petroleum products, Seoul has capped exports of gasoline, kerosene, and diesel at 2025 monthly levels in an effort to manage domestic supplies. South Korea has also raised production caps on nuclear and coal power plants to ease any disruption to electricity production from LNG shortages. Lastly, the government is taking steps to ease the burden of energy cost increases on the public.  

Supply Chain Disruptions Extend Beyond Energy 

The Middle East’s role in global energy production is the focus of much of the world’s attention, especially now that Iran has confirmed its intention to essentially keep the Strait of Hormuz blocked. However, other key inputs for the South Korean economy are produced in the Middle East. In a list of 41 key items for South Korea’s industrial supply chains, 70 percent were supplied by imports from the Middle East, particularly Turkiye, Saudi Arabia, and Israel.

One of the most immediate concerns is the supply of naphtha, the core feedstock for South Korea’s petrochemical sector, which generates roughly 7 percent of the country’s exports. Shortages of naphtha and propylene have already forced LG Chem to declare force majeure on exports of dioctyl terephthalate, a key plasticizer used in a range of thermoplastic products. Even basic goods such as plastic trash bags are now facing production delays. Yeochun NCC has also declared force majeure, and Lotte Chemical and other major producers warn they may have to follow if supply constraints persist. And the South Korean government has now placed restrictions on the export of this critical input.

The disruption in naphtha extends to high-value industries like automotives, healthcare, shipbuilding, and consumer industrial goods. Naphtha is used to produce ethylene, which is used in a wide variety of parts in the the automotive industry. The healthcare industry uses ethylene to produce medical grade plastics, while the shipbuilding industry uses it to cut steel plates. It is also used to produce polypropylene and acrylonitrile butadiene styrene, which are used in the production of washing machine components.

The cascading impact across both high‑value and everyday products underscores how quickly South Korea’s industrial base can be strained by disruptions in petrochemical feedstocks. South Korea imports upwards of 70 percent of its naphtha from the Middle East. Prior to the Ukraine war, South Korea imported 26 percent of its naphtha from Russia, but quickly phased those imports out and became more dependent on the Middle East. With shortages impacting production, South Korean firms are pushing the government to explore resuming imports from Russia.

Risks for the Semiconductor Industry

The war with Iran is also disrupting the semiconductor supply chain, including supplies of helium, bromine, sulfuric acid, aluminum, and some specialized semiconductor equipment. South Korea largely sources its sulfuric acid and aluminum from non-Middle Eastern countries, but 97.5 percent of its bromine is imported from Israel, 64.7 percent of its helium from Qatar, and a significant portion of measurement and inspection equipment is produced in Israel. Semiconductor firms have reserves of helium and there was a market surplus when the war began, lessening immediate concerns, while bromine can potentially be sourced domestically. However, these are risk areas for the semiconductor industry should the war persist.

South Korea’s semiconductors industry’s risk extends beyond domestic production. The primary export market for high-bandwidth memory (HBM) – the specialized memory used in AI chips – is Taiwan, where HBM is integrated into Nvidia AI chips. In 2025, Taiwan generated 53.3 percent of its electricity from LNG. It has adequate supplies through the end of April, but will likely face shortages then. Even if the war ends soon, it will take months to return for LNG shipments to return to normal. Damage to LNG facilities in Qatar will shave a minimum of 3 percent off this year’s production. When Samsung’s fab in Austin, Texas fab faced power constraints due to a bad storm, it remained idle for weeks. Taiwan’s ability to turn to alternative sources of energy will determine if TSMC’s facilities could face a similar situation, depressing demand for HBM.

These risks also extend to China, where Samsung and SK Hynix have significant production facilities. China produces some materials such as sulfuric acid, but similar to South Korea is highly dependent on Israel for bromine. China’s ability to manage access to these and other inputs for the semiconductor supply chain that run through the Middle East is an additional factor for South Korean firms.   

The Iran war could also reduce demand for semiconductors. AI data centers in the Middle East have come under attack, with banking and payment services disrupted after an Amazon data center was hit in the UAE. The Middle East was set to be a key region for the deployment of AI infrastructure, but the heightened security risks could either delay some deployment or push firms to reconsider their plans in the region – either of which would reduce demand for South Korean HBM.

Korean Exports to the Middle East

Although only 3 percent of South Korea’s exports go to the Middle East, the region is an important market for certain industries. For example, Hyundai Motor Group – the Hyundai, Kia, and Genesis brands – accounts for 15 percent of automotive sales in the Middle East and  the region accounts for 10 percent of Hyundai Motor Group’s global sales. Increased shipping costs from rising fuel costs and extended routes due to the closure of the Strait of Hormuz will impact profitability, while the war’s impact on the region could reduce demand at a time when Hyundai is already dealing with tariffs from the United States.  

The automotive industry is not the only South Korean industry with significant exports to the Middle East. Exports of K-beauty products to the region reached $350 million last year. While not on the scale of exports to the United States or China, there was significant growth in K-beauty exports to the Middle East prior to the war. The region is likewise a strong growth market for K-foods, with $410 million in exports last year. The closure of the Strait of Hormuz is also affecting exports to some European markets.

The conflict also affects electronics exports. Samsung accounts for 52.6 percent of the region’s OLED TV market, as well as 36 percent of its smartphone sales. LG Electronics holds the second-largest share of the TV market and competes with Samsung for the top two spots in home appliances.

What the War Means for South Korea

The war’s ultimate impact on South Korea will hinge on its duration and the scale of supply disruptions, but the early shocks already reveal deeper structural vulnerabilities. South Korea’s exposure is not simply a function of its reliance on Middle Eastern energy; it reflects a broader concentration of critical inputs – petrochemical feedstocks, semiconductor materials, and specialized equipment – within a small number of suppliers and transit routes. The closure of the Strait of Hormuz and the damage to LNG infrastructure in Qatar have underscored how quickly these chokepoints can translate into economy‑wide pressures.

If the conflict continues, higher energy costs, petrochemical shortages, and semiconductor supply risks could reinforce one another, slowing growth and weakening export performance at a time of broader global uncertainty. Each dependent not just on supplies from the Middle East, but how global markets react and adapt to shortages.

Even if the conflict ends relatively soon, the disruptions highlight the need for more diversified sourcing of critical inputs, greater redundancy in energy and materials supply chains, and closer coordination with international partners to manage future shocks. After a series of disruptions in recent years from the pandemic and Russia’s invasion of Ukraine, the conflict in Iran reinforces the need to continue efforts to improve supply chain security.

Troy Stangarone is the former director of the Hyundai Motor-Korea Foundation Center for Korean History and Public Policy at the Wilson Center.

South Korea automotive industry

South Korea energy security

South Korea petrochemical industry

South Korea semiconductors

South Korea supply chains

© The Diplomat