The United States has effectively entered war with Iran. The Korean economy, which has a long way to go, could suffer from the escalating geopolitical crisis arising from the Middle East. The unfavorable development in the Middle East, coupled with the U.S.-China trade war and Japan’s export restrictions, is likely to cast yet another shadow over the Korean export industry, which already posted a 13-month streak of decline.
Foreign news outlets reported that a U.S. military base in northern Bagdad and the heavily fortified Green Zone where the U.S. Embassy is located came under fire on Jan. 4 (local time). The United States views the attack as retaliation by pro-Iranian Shiite militias in Iraq known as the Popular Mobilized Forces (PMF), just one day after Iran’s military leader Qassem Soleimani was killed.
As the United States and Iran are sitting on a powder keg, a warning light is going off for the future of the Korean economy, which is in desperate need of a rebound momentum. If the world trade contracts due to political unrest in the Middle East, Korean companies, which are highly dependent on exports, cannot but take a direct blow.
Last year, Korean exports fell as much as 10.3 percent from the previous year due to a double dose of bad news: the U.S.-China trade war and Japan’s export restrictions. The double-digit drop that Korean exports recorded is the first time in 10 years after 2009 (-13.9 percent), when the global financial crisis occurred. “For oil importing countries like Korea, fluctuating oil prices will increase uncertainties across the economy,” said Ahn Dong-hyun, professor of economics at Seoul National University, adding, “There will be a considerable amount of negative impact on the real economy, including Korean construction companies operating in the Middle East.”
With highly volatile international oil prices, the price of West Texas Intermediate (WTI) crude oil for February delivery closed at US$63.05, up 3.1 percent (US$1.87) a barrel from the previous day on the New York Mercantile Exchange. It is the highest level in about eight months after May 2019. Brent crude also jumped 3.55 percent to close at US$68.60.