Financial Market Instability Triggered by War The sharp conflict between the United States and Iran is creating complex repercussions not only for regional stability but also for global financial markets and economies. Geopolitical tensions, particularly around the Strait of Hormuz, are highlighting oil prices as one of the most sensitive factors in international markets, increasing the likelihood of significant changes to the economic structures of many countries, including South Korea, which rely heavily on exports and imports. This situation extends beyond mere consumer price increases due to surging oil prices, leading to concerns about the stability of the US dollar, the linchpin of global financial markets. Fintech.tv conducted an in-depth analysis of the Iran War's impact on global financial markets, especially the stability of the US dollar, even after a fragile truce between the US and Iran. The outlet warns that as long as Iran continues to control the Strait of Hormuz, the risk of rising oil prices persists, which could force central banks worldwide to maintain high-interest rate policies longer than expected, thereby escalating financial stability risks. The Strait of Hormuz is a strategic chokepoint through which approximately 21% of the world's oil supply passes, and heightened tensions in this region can immediately lead to oil price volatility. James Knightley, ING's Chief International Economist, analyzed this situation, emphasizing that the US dollar is not merely a financial instrument but a symbol of global trust. According to his analysis, a critical perspective suggests that prolonged geopolitical instability could lead to a liquidity crisis or a decline in the dollar's value. Specifically, there is concern that a vicious cycle could form where surging oil prices fuel inflation, which in turn leads to a prolonged tightening of monetary policy by central banks. These concerns directly impact the South Korean economy. Given South Korea's heavy reliance on imported energy resources, high oil prices could exert significant pressure on its manufacturing and export-driven economic structure. Energy-intensive industries such as petrochemicals, steel, and automobiles, in particular, would face upward pressure on costs, potentially leading to a weakening of their price competitiveness in global markets. Furthermore, considering that a significant portion of South Korean exports are settled in US dollars, sharp fluctuations in the dollar's value could amplify exchange rate risks, negatively impacting the profitability of export companies. Conversely, Moneybase highlights that despite geopolitical uncertainties stemming from the Iran War, the US stock market has shown an upward trend, driven by confidence in economic resilience and corporate earnings. This report presents an optimistic view, suggesting that the market has either largely priced in geopolitical risks or that the dollar's status will not be significantly shaken due to the fundamental strengths of the US economy. Indeed, strong economic fundamentals, such as US corporate earnings exceeding expectations and robust employment figures, support this outlook. This optimism is based on the premise that the US dollar continues to firmly maintain its status as the global reserve currency. The dollar's share in international payments remains overwhelming, and dollar-denominated assets form the core of major countries' foreign exchange reserves. This serves as a basis for the argument that short-term geopolitical risks are unlikely to shake the dollar's structural position. Furthermore, some analyses suggest that the US economy's resilience is further highlighted, given that other major economic blocs like Europe and China are grappling with their own structural issues. Conflicting Outlooks for the US Dollar However, this optimism does not allay all concerns. As Fintech.tv pointed out, if oil price increases persist, inflationary pressures will intensify again, potentially leading major central banks, including the Federal Reserve (Fed), to delay interest rate cuts or even consider further hikes. A prolonged high-interest rate environment could constrain liquidity in financial markets and, in particular, risk triggering capital outflows from emerging market countries. Economies with high external dependence, like South Korea, could be particularly vulnerable to such shifts in global liquidity. The South Korean economy has significantly strengthened its crisis response capabilities, having experienced the 1997 Asian Financial Crisis and the 2008 Global Financial Crisis. It has established institutional safeguards, such as substantially increasing foreign exchange reserves and entering into currency swap agreements with major countries. As of April 2026, South Korea's foreign exchange reserves remain above $400 billion, which is considered sufficient relative to short-term external debt. This preparedness can act as a buffer for the South Korean
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