Geopolitical Instability in the Middle East Pushes Exchange Rate to 1,460 Won... What Lies Ahead [US-Iran War]

Aftermath of Large-Scale US-Israel Airstrikes on Iran
Exchange Rate Jumps 22.6 Won, Opens at 1,462.3 Won and Fluctuates Around 1,460 Mark
Low Likelihood of Worst-Case Scenario, Short-Term Volatility to Increase... Upper Band Projected Near 1,480 Won

On the first trading day after the March 1st Movement holiday, the won-dollar exchange rate surged at the open, reflecting the aftermath of large-scale airstrikes on Iran by the United States and Israel. Experts noted that the impact on the foreign exchange market will depend on the scope and duration of the conflict. However, they believe the likelihood of the situation escalating into the worst-case scenario is low. They anticipate increased exchange rate volatility in the short term due to oil price trends and credit risk, projecting the upper end of the short-term band at around 1,470 to 1,480 won.

On the 3rd, an employee is monitoring the stock market and exchange rates in the dealing room at the Seoul Headquarters of Hana Bank.

Geopolitical Instability in the Middle East Pushes Exchange Rate to 1,460 Won Mark

On March 3rd, the won-dollar exchange rate opened at 1,462.3 won on the Seoul foreign exchange market, up 22.6 won from the previous session’s weekly close (3:30 p.m. standard). In early trading, the rate fluctuated at the 1,460 won level. At the end of last month, the exchange rate had dropped to the 1,420-1,430 won range, but quickly rebounded to the 1,460 won level as demand for safe-haven assets increased amid concerns about Middle East geopolitical risks. The dollar index, which measures the value of the US dollar against six major currencies, rose 0.83% from the previous session to 98.535.

On February 28th (local time), after preemptive airstrikes on Iran by the United States and Israel resulted in the death of Iran’s Supreme Leader, Ayatollah Ali Khamenei, geopolitical instability in the Middle East intensified. This led to a surge in oil prices and gold prices, reflecting a preference for safe-haven assets. The value of the US dollar also rose. Concerns over potential disruptions to international oil supply chains due to a blockade of the Strait of Hormuz contributed to the price increases, and as expectations for US Federal Reserve rate cuts diminished, the resulting strong-dollar pressure intensified.

Global financial markets, including the foreign exchange market, are closely monitoring the situation because Iran produces more than 3% of the world’s crude oil and is positioned to control the Strait of Hormuz, through which about 20% of global oil shipments (20 million barrels per day) pass. If the risk spreads to neighboring countries such as Saudi Arabia, the United Arab Emirates (UAE), and Qatar, energy supply disruptions could occur on a much broader scale. This could lead not only to physical bottlenecks but also to increased overall costs, such as higher marine insurance premiums and shipping rates.

Low Likelihood of All-Out War... Short-Term Band Projected Near 1,480 Won

Experts believe the impact on the foreign exchange market will vary depending on the persistence and intensity of geopolitical risks in the Middle East. However, they see little chance of escalation into a worst-case scenario, such as an all-out war. Most expect that any blockade of the Strait of Hormuz will be a short-term issue, with localized conflicts remaining the baseline scenario. In this case, the upper end of the exchange rate band is expected to remain around 1,480 won.

Ha Keonyoung, an economist at Shinhan Investment & Securities, stated, “Looking at cases of geopolitical risks in the Middle East since the 2010s, the financial market impact of prolonged localized conflicts was concentrated in the early stages, with stabilization occurring within one to three months. This time as well, volatility is likely to increase at first but then stabilize within one to three months.”

Min Kyungwon, an economist at Woori Bank, also pointed out, “Despite the deepening rift between the United States and Iran following the death of Iran’s supreme leader, the risk-off sentiment has been limited, as evidenced by the rebound attempts in the New York stock market overnight.” He added, “While it is important to watch how the situation unfolds as tensions escalate following Khamenei’s death, the likelihood of a prolonged conflict is low considering antiwar sentiment in the United States.”“When Israel and Iran clashed in June last year, international oil prices surged and the stock market fell in the early stages, similar to what we’re seeing now. However, the markets stabilized after the US intervened more actively.”

However, contrary to earlier expectations that the exchange rate would remain stable in the low 1,400 won range, it is expected to remain volatile for the time being as geopolitical risks are reflected. Park Sanghyun, a researcher at iM Securities, said, “Credit risks spreading in the United States and the United Kingdom are likely to further strengthen the preference for safe-haven assets. Exchange rate volatility will likely persist for now.” He predicted the exchange rate would fluctuate within a band of 1,430 to 1,480 won this week.

This content was produced with the assistance of AI translation services.