South Korea’s Economy Shaken by Middle East Conflict: Won Fluctuations and Market Volatility

Escalating geopolitical risks stemming from the conflict in the Middle East are significantly impacting South Korea’s economy, leading to substantial fluctuations in the won-dollar exchange rate and increased volatility in financial markets. The situation is particularly concerning for South Korea due to its heavy reliance on energy imports and its open economic structure.

Won-Dollar Exchange Rate Reaches Highest Volatility Since COVID-19 Pandemic

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 marks the highest level of daily fluctuation since March 2020, during the peak of the COVID-19 pandemic (13.8 won) [UPI]. The daily rate of change in the won-dollar exchange rate averaged 0.91% as of March 6th, similarly the highest since March 2020 (1.12%). This represents a continued increase over the past three months, with rates of 0.36% in December 2025, 0.45% in January 2026, and 0.58% in February 2026.

Night Trading Shows Increased Volatility

Exchange rate volatility has been particularly pronounced during night trading sessions. 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 rate around 1,485 won.

KOSPI Plunges to Record Lows

The benchmark Korea Composite Stock Price Index (KOSPI) experienced a dramatic decline on Wednesday, March 4, 2026, plummeting 698.37 points, or 12.06 percent, to close at 5,093.54 [UPI] [Korea Joongang Daily]. This marked the steepest one-day decline since September 12, 2001, following the 9/11 terrorist attacks. The tech-heavy KOSDAQ also fell sharply, dropping 159.26 points, or 14 percent, to close at 978.44 [Korea Joongang Daily]. Trading volume was heavy, reaching 1.6 billion shares worth 62.6 trillion won (US$42.5 billion).

Circuit Breakers Activated

The Korea Exchange (KRX) triggered circuit breakers shortly after the KOSPI fell more than 8 percent, temporarily halting program-driven sell orders in KOSPI futures. A similar sidecar was also issued on the KOSDAQ market [UPI]. This was the first simultaneous activation of circuit breakers on both markets since August 5, 2024.

Expert Predictions and Future Outlook

Experts attribute the exchange rate sensitivity to South Korea’s dependence on energy imports and its high degree of openness to the global economy. Seo Jeong-hoon, a researcher at Hana Bank, suggests that if the Middle East conflict is resolved within the four weeks indicated by U.S. President Donald Trump, the won-dollar exchange rate will stabilize after exceeding 1,450 won. Yet, a prolonged conflict could push the rate above 1,490 won.

Key Stock Declines

Major stocks experienced significant losses. Samsung Electronics plummeted 11.74 percent to 172,200 won, whereas SK hynix dropped 9.58 percent to 849,000 won. Hyundai Motor and Kia also saw declines [Korea Joongang Daily].