Korean Won Plummets Amidst Middle East Conflict and Market Volatility

Seoul, South Korea – The Korean won has experienced significant volatility and a sharp decline in value amidst escalating tensions in the Middle East, particularly following recent conflict involving Iran. The won-dollar exchange rate has seen its largest fluctuations since the peak of the COVID-19 pandemic in March 2020, raising concerns about economic stability and potential inflationary pressures.

Won-Dollar Exchange Rate Reaches Multi-Year High

According to the Bank of Korea, the average daily fluctuation in the won-to-dollar exchange rate through March 6, 2026, was 13.2 won. This is the highest level of daily fluctuation recorded since March 2020, when it reached 13.8 won during the initial stages of the COVID-19 outbreak. The daily rate of change averaged 0.91% as of March 6th, also the highest since March 2020 (1.12%). This increasing volatility has been observed over the past three months, with fluctuations steadily rising from 0.36% in December 2025 to 0.45% in January 2026 and 0.58% in February 2026.

Night Trading Amplifies Exchange Rate Swings

The volatility has been particularly pronounced during night trading hours. On March 7, 2026, the won-dollar exchange rate closed at 1,481.6 won in Seoul Foreign Exchange Market night trading, a 5.2 won increase compared to the daytime transaction on March 6th. Trading in the U.S. Offshore market (NDF) on March 6th saw the exchange rate around 1,485 won.

Geopolitical Risks and Korea’s Economic Vulnerabilities

Experts attribute the exchange rate’s sensitivity to the heightened risk of war in the Middle East. South Korea’s significant reliance on energy imports and its high degree of openness to international trade make it particularly vulnerable to disruptions in global energy markets and economic shocks. Panic selling has been observed across Asian markets, including Seoul, Hong Kong, and Tokyo.

Market Reactions and Future Outlook

The KOSPI, South Korea’s benchmark stock index, has experienced substantial declines, with a 12% fall marking its largest daily loss ever, triggering circuit breakers. Korean stocks recorded their worst day on March 4, 2026, as the conflict sparked a widespread selloff.

Hana Bank researcher Seo Jeong-hoon suggests that if the conflict is resolved within the timeframe suggested by U.S. President Donald Trump (approximately four weeks), the won-dollar exchange rate will likely stabilize after exceeding 1,450 won. However, a prolonged conflict could push the exchange rate beyond 1,490 won.

Broader Asian Market Impact

The US-Iran conflict has triggered a broader shift in global capital, leading to a 6% slump in the MSCI Asia Pacific Index, a steeper decline than that of the S&P 500. This indicates a flow of capital back to the United States, potentially reversing the earlier trend of investment shifting from the US to Asia. Japan and South Korea are particularly affected due to their economic ties to the region and reliance on stable energy supplies.

The KOSPI is considered a key indicator for the S&P 500’s Information Technology sector, given the significant roles of companies like Samsung Electronics and SK Hynix. Declines in the KOSPI can signal potential challenges for the broader market.