As tensions between the United States and Iran escalate to a breaking point, Middle East risk has become a reality. The won-dollar exchange rate, which had recently shown a stable trend in the low 1,400-won range, is increasingly likely to swing. Some predict the rate could surge above 1,500 won.
According to the Bank of Korea's Economic Statistics System (ECOS) on the 2nd, last month's average monthly exchange rate was tallied at 1,448.4 won. It fell below 1,450 won for the first time in four months since Oct. last year (1,423.2 won). The market had expected the rate to decline further on the back of strong semiconductor exports, but the situation is changing rapidly as a geopolitical shock boosts preference for the safe-haven dollar.
KB Kookmin Bank, in a report published on the 1st titled "U.S.-Iran clash phase and future development scenarios," pointed to the Strait of Hormuz as the biggest variable, saying, "If the Strait of Hormuz is blocked, more than 20% of global crude oil shipments will be disrupted." Based on this, the report presented expected ranges for the won-dollar exchange rate by scenario.
KB Kookmin Bank projected the exchange-rate path by dividing future developments into three cases: ▲ the conflict ends quickly (30% probability), ▲ the conflict drags on (50%), and ▲ refineries in Iran and neighboring countries are hit (20%).
If the conflict eases quickly, the bank saw a high likelihood that the Strait of Hormuz blockade would be lifted within three to four days. In that case, it expected the won-dollar exchange rate to move in a 1,430–1,470 won range. It also forecast that the dollar index, which reflects the value of the dollar against six major currencies, would rise slightly and then fall, fluctuating around the 97–99 level.
If, by contrast, airstrikes and counterattacks drag on, the Iranian government's hard-line stance is likely to persist and transport disruptions in the Strait of Hormuz are also expected to continue. The blockade would last three to four weeks, and the exchange rate would rise to around 1,470–1,500 won. The dollar index would likely see a larger increase, potentially climbing to as high as the 103 level.
The worst-case scenario is damage to refineries in Iran and neighboring countries. In that case, the strait would likely remain blocked for two to three months, and the won-dollar exchange rate would move in the 1,490–1,540 won range. The dollar index was expected to rise to the 108 level.
Moon Jeong-hui, a senior economist at KB Kookmin Bank, said, "If the Islamic Revolutionary Guard Corps and pro-Iran forces move, the proxy war expands, and even refineries are hit, there will be severe disruptions to crude oil production and supply in the Middle East," adding, "International oil prices could also top $100 per barrel."
Park Sang-hyun, a senior fellow at iM Securities, said, "For now, oil is holding in the $70-per-barrel range, so the exchange rate will likely move in the mid- to high-1,400-won range," but added, "If the conflict drags on, oil tops $100 and that level persists for a considerable period, we cannot rule out the possibility of surpassing 1,500 won."