April 30, 2024

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President Yoon Suk Yeol (right) speaks during an emergency cabinet meeting to discuss government measures against the rising Middle East conflict held at the presidential office in Seoul on Sunday. (Yonhap)

The South Korean government on Sunday announced heightened vigilance against potential domestic repercussions in light of the escalated tensions in the Middle East following Iran's attack on Israel.

President Yoon Suk Yeol convened an emergency meeting with cabinet members and relevant government agencies to discuss strategies to respond to the the ongoing conflict between Iran and Israel.

The meeting followed Iran's launch of drones and missiles into Israel early Sunday, apparently in retaliation for a fatal attack on an Iranian consulate in Damascus, Syria, on April 1 that claimed 12 lives. Reports indicated that Iran launched dozens of drones and over 200 missiles on Sunday.

Given South Korea's strong reliance on trade and sensitivity to escalating global oil prices, President Yoon instructed for comprehensive government-wide cooperation to monitor and manage situations surrounding oil prices, energy supply and the supply chain network.

"To ensure swift and effective responses to any future developments, the government must develop robust plans based on a thorough assessment of all risk factors affecting the local economy and security," Yoon emphasized during Sunday's meeting.

He also called for measures to safeguard Korean citizens and companies in the conflict-affected region, as well as the country's vessels navigating in nearby waters.

Globally, oil prices have been on the rise this year, climbing from $70 to over $80 last month. Amid growing concerns over potential retaliation from Iran, the price of West Texas Intermediate crude oil surged to a session high of $87.67 per barrel on Friday, eventually settling at $85.66. Similarly, Brent futures reached a five-month peak of $92.18 on the same day.

Market analysts had predicted that global oil prices could soar to beyond $100 in the event of an Iranian attack. In a worst-case scenario, if the escalating tensions lead to disruptions in the critical trade route of the Strait of Hormuz, prices could spike to $120 or even $130 per barrel, as projected by Bob McNally, president of energy market analysis company Rapidan Energy, in a CNBC report.

The upward trend in oil prices could trigger a chain reaction of increasing prices for raw materials and consumer goods, thus leading to further inflation. South Korea has already been going through a resurgence in inflation, surpassing the 3 percent mark in February and maintaining a level of 3.1 percent for two consecutive months.

Escalating geopolitical tensions could delay US Federal Reserve rate cuts, leading to a depreciation of the Korean won and prompting significant foreign investment withdrawals from the stock market. Experts warn of further weakening of the won against the US dollar, which hit a 17-month high of 1,375.4 won on Friday.

Gold prices have reached record highs in recent weeks as escalating instability has driven more investors to seek refuge in the safe-haven asset. During Friday's trading session, gold surpassed $2,400 per ounce for the first time and closed at $2,374.1, marking a 1.4 percent increase from the previous day.

Ahead of the Cabinet meeting, Deputy Prime Minister and Finance Minister Choi Sang-mok on Sunday convened an emergency meeting with the nation's financial regulators to address possible economic consequences from the Iran-Israel tension.

Choi also warned that the Korean economy may suffer intense damage depending on how the situation unfolds and asked relevant government agencies to maintain control through tight cooperation.

In addition, Choi ordered an emergency response team to operate around the clock, every day, to monitor the local and global financial situation, while reviewing contingency plans to ensure swift responses to potential emergencies.

By Choi Ji-won (jwc@heraldcorp.com)
The Korea Herald