Korea Views: Energy Shock Impact — Past, Present, and Outlook
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Goldman Sachs assesses the macroeconomic impact of Middle East energy disruptions on South Korea, a highly export-oriented economy dependent on imported energy. While current oil prices are comparable to 2022–2023 levels, the current shock is distinctly supply-driven rather than a broad demand and supply imbalance.
Inflation pass-through has been more muted than in 2022. Despite a 50% month-over-month surge in KRW-denominated Brent crude prices in March, gasoline prices rose only 11%, compared to 19% over two months in 2022. This moderation reflects emergency stabilization measures, including fuel price caps and energy tax cuts, which are estimated to reduce 2026 headline inflation by 50 basis points. Under a baseline scenario, inflation is expected to peak at 2.6% in Q3. However, if oil prices climb further alongside a 5% KRW depreciation, inflation could slightly exceed 3%.
Short-term growth risks are heavily concentrated in the refining and petrochemical sectors, with an estimated monthly GDP loss of 10 basis points. Should raw material disruptions persist beyond Q2, full shutdowns at certain petrochemical plants are possible. Concurrently, a K-shaped economic divergence is widening. Exports continue to accelerate, driven by the AI and semiconductor cycle, while domestic retail sales remain subdued due to labor market weaknesses and elevated household debt.
Robust external and fiscal buffers provide support. Korea's current account surplus is projected to reach a record exceeding 10% of GDP in 2026. The Bank of Korea is expected to maintain its policy rate at 2.5% in April, as markets appear to overprice inflation and hawkish risks.