Won sinks to a 17-year low, Kospi sheds $444 billion and growth forecast slips below 2 percent
The US-Iran conflict is impacting South Korea’s economy. The Korean won has experienced significant depreciation, reaching its weakest level in 17 years. The Kospi has also suffered losses, and economic growth forecasts have been revised downward.
The won hit 1,518.4 against the dollar on March 23, 2026, marking its lowest point since March 2009. The average for the month was 1,489.3 per dollar, weaker than during the 1998 foreign exchange crisis. The weekly average also exceeded 1,500 for the first time in 17 years, reaching 1,503.4 last week.
The won’s decline surpasses that of other major currencies. It has fallen by 4.72 percent in March, while the dollar index has gained 2.6 percent during the same period.
Foreign capital outflows have exacerbated the situation, reversing the positive trend in the South Korean equity market. Overseas investors net sold 29.8 trillion won ($19.75 billion) of Kospi shares in March, following 21.1 trillion won in net sales in February. These represent record monthly selloffs by foreign investors.
The stock market has been significantly affected. Kospi market capitalization decreased from approximately 5,150 trillion won at the end of February to 4,480 trillion won on Friday. A particularly volatile period saw 817 trillion won erased in two days, including a 12 percent drop on March 4.
Market volatility has been extreme, with sidecars triggered 10 times on the Kospi this year, seven times in March alone. Full market-wide circuit breakers were activated twice this month.
South Korea’s vulnerability to external shocks is negatively impacting the macro outlook. The Organization for Economic Cooperation and Development (OECD) has lowered its 2026 growth forecast for South Korea to 1.7 percent, a 0.4 percentage point reduction from its December estimate.
Prior to the escalation of tensions in the Middle East, the Korean government and the Bank of Korea had projected 2 percent growth for this year. The state-run Korea Development Institute and the International Monetary Fund had forecast 1.9 percent.
The Economy Ministry’s summary of the OECD outlook highlighted South Korea’s reliance on Middle Eastern energy. The OECD also raised its inflation forecast for the country to 2.7 percent, a 0.9 percentage point increase from December, cautioning that a prolonged war in the Middle East would negatively impact output in South Korea and other energy-dependent Asian economies.
South Korea imports approximately 70 percent of its oil from the Middle East, making its export-driven economy susceptible to external disruptions. Brent crude has risen over 40 percent since the end of last month, while the Platts Dubai benchmark has surged nearly 90 percent.
Citi has reduced its Korean forecast to 2.2 percent, while the Seoul-based NH Financial Institute projects that annual growth could decline by 3 percentage points if Middle East tensions persist for more than three months. In a prolonged conflict lasting more than a year, growth could fall below 1 percent.
Korean authorities are implementing measures to address the situation. The government launched a 5 trillion won emergency bond buyback after the war triggered a selloff in local debt and increased yields. It also raised fuel price caps and increased domestic energy supply by boosting nuclear plant utilization and relaxing seasonal limits on coal-fired generation. Temporary restrictions were imposed on naphtha exports due to supply disruptions affecting the key petrochemical feedstock, with approximately half imported through the Strait of Hormuz.
A supplementary budget of around 25 trillion won is under consideration to mitigate the impact of higher fuel costs, increase support for vulnerable groups and affected businesses, and enhance supply chain and energy stability.
jwc
