High Oil Prices and Exchange Rates... Iran Crisis Warning Signs Intensify

Uncertainty Over President Trump's Exit Strategy
Concerns Grow Over Prolonged Strait of Hormuz Blockade
Outlook: Slowing Consumption, AI Cycle Disruptions, and Global Supply Chain Risks

Amid rising international oil prices due to the war between the United States and Iran, domestic gas station fuel prices are also increasing daily. At a gas station in Jung-gu, Seoul, the price of gasoline increased by 20 won and diesel by 50 won on the 6th compared to the 5th (photo below). 2026.03.06 Photo by Yoon Dongju

Concerns over the prolonged Iran crisis are sounding alarms for the financial markets and the overall economy. Analysts warn of red flags across various sectors: the possibility of a prolonged period of high oil prices above 100 dollars per barrel, deterioration in consumer sentiment, global supply chain disruptions stemming from the Middle East, surging interest rates, and the spread of credit risk warnings.

On March 16, iM Securities projected that if the blockade of the Strait of Hormuz continues and high oil prices persist, these warning signs may escalate into actual risks. The company explained that the warnings are growing louder as President Donald Trump's exit strategy for the Iran crisis becomes increasingly complicated.

Tensions surrounding the Strait of Hormuz have heightened further after the US military attacked Kharg Island, Iran’s oil hub. This has increased the possibility of a prolonged blockade of the Strait of Hormuz, as well as attacks on oil production facilities in Gulf countries. There is a growing consensus that the US exit strategy, which aimed for a unilateral declaration of victory, has now run into difficulties.

Park Sanghyun, a researcher at iM Securities, stated, "President Trump and the US government have yet to present a clear response to the blockade of the Strait of Hormuz, raising the likelihood that the blockade will continue for an extended period." He added, "Warnings in the financial markets and the broader economy are intensifying."

Potential for Prolonged High Oil Prices...Oil at 100 Dollars Becoming the Norm

The greatest concern is that oil prices above 100 dollars per barrel could persist for an extended time. After fluctuating, oil prices—based on West Texas Intermediate (WTI)—now appear likely to remain above 100 dollars. The US attack on Iran's Kharg Island has created further upward pressure. The risk of Iran indiscriminately attacking oil production facilities in Gulf countries has significantly increased. The price of Dubai crude oil has already reached 127 dollars per barrel and is now approaching 150 dollars.

There are also concerns about a full-scale slowdown in consumption, triggered by surging US gasoline prices. Gasoline prices in the US are currently around 3.7 dollars per gallon and are expected to approach the 4 dollar mark this week. With consumer sentiment already weakening due to sluggish job creation, this could prove to be a critical blow. In particular, if the current high oil price situation lasts for more than a month, the consumer price inflation rate could once again exceed 3% after March, potentially sparking fears of stagflation—a combination of economic stagnation and rising prices.

Global Supply Chain Disruptions from AI to Consumer Goods

Global supply chain disruptions originating from the Middle East also pose a significant risk. There are even warnings that the semiconductor supply chain could be threatened. Morgan Stanley pointed out that due to disruptions in energy supplies from the Middle East, foundries such as Taiwan's TSMC could face shortages of liquefied natural gas (LNG). While immediate production halts are unlikely, sharply rising costs could become an issue, posing risks to the global supply of technology and artificial intelligence (AI) chips. In other words, the so-called "chipflation" could materialize, adversely affecting the AI cycle.

Vietnam, which has emerged as a key production base replacing China, is also facing alarm over its oil reserves. While Vietnam has stated that it holds strategic oil reserves sufficient for up to 45 days of stable supply, it appears difficult to avoid production disruptions if the crisis is prolonged. This could lead to yet another round of global supply chain disruptions.

There are also concerns about surging interest rates. Government bond yields in major economies have already become volatile. Since the Iran crisis began, the yield on the UK’s 10-year government bonds has soared by about 60 basis points (bp, 1 bp = 0.01%) as of the market close on March 13. The yield on 10-year US Treasury bonds has jumped by about 34 bp. As both government bonds and gold are being shunned, there could be an extreme shift toward safe-haven assets globally. Ultimately, this could push up rates on corporate bonds and raise corporate funding costs, negatively impacting the AI investment cycle. In addition, the spread of warnings related to private debt is another burden.

iM Securities predicted that the frustrating market situation—relying solely on hopes of falling oil prices—is likely to persist for the time being. Researcher Park commented, "With only limited adjustment at the current level, there is not much time left for financial markets and the economy to withstand high oil prices." He added, "If the blockade of the Strait of Hormuz continues and high oil prices persist for more than a month, it is highly likely that various warning signals will turn into real risks rather than remaining mere warnings."

This content was produced with the assistance of AI translation services.