Korea Won Oil Price Alert

South Korean authorities are closely monitoring the situation and hinting at potential verbal intervention as a Middle East-related oil shock puts continued pressure on the Korean won (KRW). This situation is pushing the USD/KRW monthly average towards levels reminiscent of past economic crises. The heightened concern comes after the won briefly surpassed the 1,500-per-dollar mark in overnight trading on Friday, sparking renewed anxieties about foreign-exchange market instability.

“Major currencies such as the won, yen and euro are all weakening as the dollar strengthens,” Finance Minister Koo Yun-cheol stated to reporters in Tokyo on Saturday following a meeting with his Japanese counterpart. “We may turn to verbal intervention if necessary.”

Minister Koo’s comments suggest that Seoul is ready to intensify its response should foreign-exchange volatility worsen. This also leaves open the possibility of coordination with Tokyo. Following the meeting, Koo and Japanese Finance Minister Satsuki Katayama released a joint statement expressing “grave concern” over the sharp depreciation of both the won and the yen. They indicated that the two governments have discussed strategies to address excessive volatility and disorderly market movements, with the potential for joint action if required.

The won experienced a significant weakening towards the end of the week, breaking the 1,500 threshold during overnight trading on Friday, according to data from Seoul Money Brokerage Services. After the onshore session closed at 1,493.7 per dollar, a decrease of 12.5 won from the previous day, it reached a high of 1,500.9 in after-hours trading before settling at 1,497.5 by 2 a.m., marking the highest overnight session close of the year thus far.

This movement has deepened the March averages into territory not seen since previous economic crises. The dollar-won exchange rate has averaged 1,477 in daytime trading this month, representing the highest monthly average since March 1998. Furthermore, last week’s average of 1,481 was the highest since the second week of March 2009.

The won’s depreciation has exceeded both the dollar’s overall gains and the declines observed in other major currencies. Market data indicates that the won has fallen by 3.84 percent against the dollar through Saturday, compared to a 2.92 percent rise in the dollar index, which measures the greenback against a basket of major currencies. The won also underperformed the euro, yen, pound, and most key Asian currencies.

The currency’s decline has coincided with a renewed surge in crude oil prices, driven by the ongoing Middle East conflict showing little sign of resolution. After falling below $90 a barrel earlier in the week due to hopes of de-escalation, Brent crude reversed sharply upwards following tanker attacks and threats to shipping through the Strait of Hormuz, reigniting concerns about a prolonged supply shock. It rose by 11 percent over the week to settle at $103.14 on Friday, marking its first close above $100 since August 2022.

South Korea, which imports approximately 70 percent of its oil from the Middle East, has been particularly affected. This makes the won more vulnerable when regional supply risks intensify and safe-haven demand strengthens the dollar. This vulnerability was evident on Monday, when Brent crude briefly spiked to $119.50 a barrel, pushing the won to its highest daytime close of the year at 1,495.5 per dollar.

Market analysts suggest that the won is likely to remain under pressure near the 1,500 level as long as Middle East tensions remain unresolved and Brent crude prices stay elevated.

“USD/KRW is likely to remain sticky in the upper 1,400 won range,” stated Shinhan Securities analyst Lee Jin-kyung, adding that downside in the pair would be limited as geopolitical risks support the dollar and risk-off sentiment drives foreign selling of Korean equities. “We put more weight on that pattern holding until a mediation framework becomes visible at a US-China summit at the end of March,” Lee said.

KB Securities analyst Oh Jae-young also cautioned that the won might remain particularly vulnerable due to Asia’s heavy reliance on energy imports and Middle Eastern supplies. “Rising oil prices will essentially push USD/KRW higher by narrowing Korea’s trade and current-account surpluses,” Oh said, estimating that every $10-a-barrel increase in crude oil could add about 15 won to the exchange rate, which is already fluctuating between 1,450 and 1,500 won to the dollar.

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