[Exchange Rate Diagnosis]①One Week After U.S. Airstrikes on Iran, Where Is the Won Headed? "Stabilization Expected Within Weeks... Upper Limit at 1,480 Won"

On March 6, about a week after the U.S.-Israel airstrikes on Iran, the market's attention was focused on whether the conflict in the Middle East would drag on. Most experts believe that, at the earliest by next week, and at the latest within a month, the hostilities in the Middle East will come to an end. This scenario is supported by the need for U.S. President Donald Trump to consider public opinion at home. In this case, the upper limit for the exchange rate has been suggested at 1,480 won.

An employee is monitoring the stock market and exchange rates in the dealing room at the Seoul Hana Bank headquarters.

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Minkyeongwon, economist at Woori Bank, believes that the situation is likely to stabilize to some extent after this weekend. He explained, "Opposition to troop deployment exceeds 60%, and there is a lack of public support in the United States," adding, "The possibility of deploying ground troops beyond airstrikes is virtually nonexistent." He also pointed out that even within the Republican Party, there is strong opposition to a military operation to invade Iran, making it unlikely that Congress, which holds the power to authorize war, would give its approval.

China, an important ally of Iran, is also sensitive to any blockade of the Strait of Hormuz. Therefore, if criticism emerges from China on this issue, Iran would lose the justification to prolong the situation further. He assessed, "Even if the conflict ends early, both sides will need face-saving outcomes to appeal to their respective supporters, so a strong standoff may continue." In this case, the exchange rate could temporarily exceed 1,480 won during the day as a short-term shock, but it is likely to be defended at 1,480 won by market close. He also observed that if the situation stabilizes early, the rate could return to the pre-war level of 1,420-1,440 won.

Baek Seokhyeon, economist at Shinhan Bank, also predicted that the situation would calm within a month. He said, "The exit is more or less predetermined. By the end of March, there is a high likelihood the U.S. will pull back." He added, "(President Trump) is determined not to let this become a prolonged conflict like the Iraq War, so when the time comes, he will use the narrative of removing Iran's supreme leader, neutralizing Iran, and 'making America great again' to justify withdrawal."

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There are also voices emphasizing the need to pay attention to future oil price trends amid ongoing volatility. Moon Jeonghui, Chief Economist at KB Kookmin Bank, said, "I think the worst of the fear has passed," and explained, "If we set the first oil price ceiling at $75 per barrel, the exchange rate will likely be around 1,470 won." If the situation deteriorates, such as through the destruction of oil refineries, and oil prices surpass $85, she expects the exchange rate could approach 1,490-1,500 won. She added, "Even just discussions of forming a new Iranian government or resuming nuclear negotiations would ease market anxiety. While there are signs of this in Iran, the U.S. is opposed, so it will likely take a few weeks." She noted that concerns about guerrilla warfare, counterterrorism, and Shia militia activity may persist.

If the situation escalates into a full-scale war, including ground troop deployment and a wider conflict across the Middle East-the "worst-case scenario"-the previous high of 1,506 won could be reached again. However, she sees this as unlikely. Seo Jeonghoon, Senior Specialist at Hana Bank, commented, "On April 4, the KOSPI drop was reportedly even steeper than after the 9/11 attacks. In an extreme scenario, the market could plunge even further, and the foreign exchange market could face greater turmoil." However, he added, "There are even discussions about electing a pro-American, reform-minded leader, and diplomatic negotiations are possible, so if the system is restored quickly, the situation could be settled within a month."

Some experts argued that the long-term risk of a blockade of the Strait of Hormuz is more important than the risk of prolonged war. Minkyeongwon said, "If the blockade persists, Korea will have to look for alternatives, such as importing U.S. liquefied natural gas (LNG) like Japan does." Moon Jeonghui added, "If oil prices exceed $110 per barrel, the exchange rate will also surpass 1,500 won. Beyond that, we will see adjustments in oil prices and financial markets, and discussions of inflation, pushing the rate even higher. However, this would require the level of destruction of Middle Eastern refineries, which is unlikely."

Until the situation stabilizes, the consensus is that high volatility will continue. Byeon Jeonggyu, Head of the FICC Division at Daiwa Securities Korea, said, "For the time being, we expect investors to take a wait-and-see approach, trading only as needed. Because both good and bad news will trigger large swings, the higher the exchange rate rises, the larger the subsequent drop could be." Park Sanghyeon, economist at iM Securities, also noted, "Volatility will remain high for now," and added, "Once the Iran issue is resolved, there is a high possibility that the exchange rate will return to pre-war levels or even stabilize below that."

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