Oil Surge Deepens Inflation and Market Pressure in South Korea
Brent crude climbed more than 3 percent above $107 a barrel after a proposed Iran truce was rejected, adding to inflation and interest-rate concerns as South Korean shares fell sharply.
A renewed surge in oil prices is adding to inflation, interest-rate and financial-market pressure in South Korea after hopes for a short truce in the conflict involving Iran faded.
Brent crude rose more than 3 percent on Monday to move back above $107 a barrel. The rebound followed a decline of more than 2 percent on Friday, when Iran's proposal for a seven-day halt in hostilities had raised expectations that the Strait of Hormuz could reopen and ease a severe disruption to global energy supplies.
US President Donald Trump rejected the proposal, though he said he expected negotiations to resume. Iran has maintained conditions for reopening the waterway, including the release of frozen assets, the lifting of sanctions on its oil and an end to the US naval blockade. The strait is a critical route for the world's energy trade, making any disruption especially consequential for import-dependent economies such as South Korea.
The shift in sentiment was reflected in Seoul's financial markets. The benchmark Korea Composite Stock Price Index fell 2.7 percent, or 191.18 points, to close at 6,889.74 when trading resumed after the Chuseok holiday. Foreign investors sold a net 3.2 trillion won in shares, while institutions posted net sales of 1 trillion won. Individual investors bought a net 2.6 trillion won.
Large technology stocks led the decline. Samsung Electronics dropped 5.43 percent and SK hynix lost 5.05 percent. The won was quoted at 1,365.1 per US dollar at 3:30 p.m., 7.6 won weaker than at the previous session's close. Investors were also contending with rising bond yields and uncertainty over the Middle East conflict.
Higher energy costs pose a wider challenge for South Korea because they can raise transport and production expenses, complicate the inflation outlook and weigh on household purchasing power. The global bond market is already signaling renewed concern: the average yield on a broad gauge of world bonds moved above 4 percent last week for the first time since 2007.
Attention is now turning to the US Federal Reserve's next meeting at the end of October. Market pricing indicated a greater than 65 percent probability of a second consecutive rate increase. Upcoming US inflation and employment data could influence that decision, with potential consequences for the dollar, the won and capital flows across Asian markets.
Negotiations between Washington and Tehran could still restore some optimism. Until there is clearer progress toward reopening the Strait of Hormuz, however, elevated oil prices are likely to remain a source of uncertainty for Korean markets and the broader economy.