Iran crisis sharply weakens Korean won, fueling inflation, economic fallout concerns

SEOUL, Mar 16 (YONHAP/APP): The South Korean won’s slide to a 17-year low Monday has further raised concerns of inflation and broader economic fallout, with analysts warning that the currency could remain trapped under the critical 1,500 won-per-dollar level for some time if the Middle East crisis persists and global oil prices remain high.

The won opened at 1,501 per dollar Monday, down 7.3 won from the previous session, breaching the significant psychological and technical barrier of the 1,500 won mark in regular trading hours for the first time since March 12, 2009, when the country was reeling from the global financial crisis.

The currency later trimmed its losses and was quoted at 1,497.5 per dollar, marking its weakest level in 17 years.

The won had depreciated 3.84 percent against the greenback since the start of the month through Saturday following the U.S.-Israeli strike on Iran, recording a steeper drop than other major Asian currencies. The Japanese yen and Chinese yuan have fallen 2.39 percent and 0.79 percent, respectively.

The won’s weakness came as the Middle East conflict has pushed up global oil prices amid supply disruptions and reinforced the broader strength of the dollar amid risk-off sentiment.

Brent Crude, the global benchmark, surged to a multiyear high of more than $106 a barrel Sunday (U.S. time) as the Strait of Hormuz has been effectively shut since the beginning of the crisis. Around 20 percent of the world’s oil and gas supply passes through the strategic waterway.

Higher oil prices tend to weigh particularly heavily on the won as they increase South Korea’s demand for dollars to pay for crude imports. South Korea depends on imports for about 98 percent of its fossil fuels and sources roughly 70 percent of its crude oil from the Middle East, according to industry and government data.

“The surge in global oil prices has heightened inflation concerns, boosting demand for safe-haven assets and strengthening the dollar,” Park Hyung-joong, an economist at Woori Bank, said.

“The Iran crisis is increasingly likely to last longer than expected, and the won may continue to fluctuate around the 1,500 won range if such structural pressures persist,” he added.

Foreign outflows from the local stock market have also weighed on the currency.

Offshore investors have dumped about 13 trillion won (US$8.69 billion) worth of Korean stocks during the first half of this month following a record monthly net sale of 21 trillion won in February, data from the Bank of Korea (BOK) showed.