NEWS

Korea Sees Economic Turmoil from Iran War

Daniel Mitchum

The recent war involving the United States, Israel, and Iran is sending shockwaves through the global economy, with South Korea coming under considerable strain. Heavily dependent on imported energy and export-driven growth, Seoul now faces a convergence of inflationary pressures, industrial strain, and financial volatility.

At the center of Seoul’s financial woes lies the disruption of the Strait of Hormuz, an artery through which roughly 20% of global oil supply flows. However, since the outbreak of hostilities in late February 2026, Iranian retaliation had effectively halted tanker traffic, initially pushing oil prices above $100 per barrel. For South Korea, which imports the majority of its crude oil from the Middle East, the consequences were immediate and far-reaching.

In South Korea, rising oil prices fed directly into higher manufacturing costs and consumer inflation. A state-run research institute estimates that a 10% increase in global oil prices raises Korean manufacturing costs by 0.71%, compounding pressure on key export industries such as semiconductors, petrochemicals, and automobiles.

Seoul’s broader macroeconomic outlook initially looked grim. Analysts warned that sustained energy shocks could push South Korea toward stagflation and growth forecasts downward. Some projections suggest economic growth could fall to around 1% if high energy prices persist.

While Seoul’s market rebounded and the won rose in value on a drop in oil prices, following U.S. President Donald Trump’s call to keep the Strait of Hormuz open and reports of some oil tankers passing through the waterway, the government has continued contingency planning.

President Lee Jae Myung has called for measures to blunt the economic fallout. Stating that “…we must prepare measures with even the worst-case scenario in mind on the premise that the Middle East situation may be prolonged," Lee is seeking diplomatic avenues to secure South Korea’s energy supply. Furthermore, the Lee administration may seek to restrict motor vehicle use to reduce the nation’s fuel consumption. This plan would, based on license plate numbers, prohibit vehicle usage once within either a five or ten-day period, depending on the policy adopted by the government.

South Korea Passes U.S. Investment Bill

Mikayla Basanese

South Korea’s National Assembly passed a bill on March 12 to implement Seoul's pledge of $350 billion in U.S. investments. This investment was the centerpiece of the 2025 bilateral trade deal aimed at easing tariff tensions. The legislation received broad bipartisan support, passing 226 to 8 and it establishes a state-backed investment fund to oversee and finance the projects. This framework is meant to reduce risk for Korean companies and ensure investments align with strategic sectors prioritized by Seoul and Washington. 

A large share of the funds will go toward semiconductors and advanced manufacturing, reinforcing supply chain resilience, and aligning with U.S. industrial policy goals. Additional major allocations are planned for energy (including clean energy and LNG infrastructure), shipbuilding, batteries, and emerging technologies such as AI and critical minerals processing. 

The investment package is tied directly to U.S. tariff policy. Under the earlier agreement, Washington reduced tariffs on South Korean exports from 25% to 15% in exchange for Seoul’s investment pledge. However, delays in passing the bill had prompted renewed threats from the U.S. to reimpose higher tariffs, creating urgency in Seoul to finalize the legislation.

Despite the bill’s passage, tensions persist. The U.S. has launched a new trade probe (Section 301 investigation) that could justify additional tariffs, casting uncertainty over the agreement’s long-term stability. South Korean officials have downplayed the probe as expected but remain cautious, as it signals that Washington may continue to leverage trade tools even after securing the investment commitment.

Overall, the situation reflects a transactional phase in U.S.-South Korea economic relations. Seoul is committing large-scale outbound investment to maintain favorable access to the U.S. market, while Washington continues to use tariff threats and investigations to shape trade terms. While the new law helps to stabilize the relationship in the short term, ongoing probes and political pressure suggest that friction between the two allies is likely to continue.

Today in Korean History

On March 17th, 2018 South Korean Sin Eui-hyun earned South Korea's first gold at a Winter Paralympic Games in Pyeongchan. Competing in cross-country skiing, Sin completed the race with a mere two seconds ahead of the silver medal winner to bring home the gold in a 7.5 km sitting race.