South Korea braces for ‘worst-case scenarios’ as Iran oil shock deepens

South Korea stepped up emergency economic planning on Wednesday after Prime Minister Kim Min-seok warned the government should prepare for “worst-case scenarios” related to the Middle East conflict that shows no signs of abating.

The government plans to establish an emergency economic task force led by Kim to coordinate inter-ministerial efforts, the prime minister said at the press conference. Yonhap News Agency.

“It is time to step up the government’s preventive response system to prepare for a protracted situation, including worst-case scenarios,” Kim said.

The group will meet twice a week in five working groups and oversee the impact of the war on energy, the macroeconomy, financial markets and household livelihoods, as well as overseas situation monitoring.

Kim added that an emergency economic room will also be established in the presidential office.

The moves follow South Korean President Lee Jae Myung’s order to activate the preventive emergency response system on Tuesday as Seoul steps up efforts to manage the economic fallout of the conflict.

Asian country imports approx. 70 percent of crude oil And 20% of liquefied natural gas Energy flows from the Middle East leave the economy particularly vulnerable to prolonged disruptions in energy flows.

The Strait of Hormuz, a narrow waterway connecting the Persian Gulf and the Gulf of Oman and carrying one-fifth of global energy flows, has been effectively closed by Iran since the war began on February 28. This disruption has shaken global energy markets and reignited inflationary pressures from rising energy prices.

South Korea has implemented various emergency measures, including a fuel embargo, as unrest in Iran deepens. Price ceiling for the first time in nearly three years Decades to contain the rise in energy prices.

A price cap could reduce retail fuel prices by approximately 8% on an average annual basis. Goldman Sachs It was predicted in a note on Tuesday.

The government also introduced a five-day, number-plate-based rotation system to restrict public sector vehicle traffic and reduce petroleum consumption, forcing households to take shorter showers and charge phones throughout the day.

“Public services inflation, especially electricity and gas, is expected to increase gradually from the fourth quarter of 2026 [the fourth quarter of 2026] Citi Korea Chief Economist Jin-Wook Kim said in a note Tuesday that major gas and energy companies will act as price buffers for a while. He said he expects a limited risk of disruption in natural gas imports and domestic gas use for now, thanks to the government’s efforts to diversify energy sources.

The government has tried to turn to coal as an alternative source. Removal of 80% maximum operating limitBy increasing the usage rate of nuclear power plants, nuclear energy and approximately 70% to 80%.

Park Seok Gil, Korea’s chief economist, said the ongoing energy crisis has exposed the fragility of Korea’s energy mix. JPMorganHe noted that “we need to price in the possibility of supply shocks and further disruption.”

He also called on the government to expand nuclear power as well as add more renewable energy to the equation. “We need to be better prepared for any kind of a shock in the pipeline,” he told CNBC’s “Squawk Box Asia” on Tuesday.

On March 5, President Lee announced a 100 trillion won ($66.9 billion) financial market stabilization fund and urged authorities to step up efforts to reduce volatility in financial and foreign exchange markets.

“Fiscal policy is the first line of defense as of now,” Gil said; In terms of monetary policy, he said the Bank of Korea will probably keep rates high to control inflation pressure.