South Korea's Kospi index slides sharply as Middle East conflict escalates: here's why

South Korea’s main stock index, the Kospi, fell sharply after rising geopolitical tensions in the Middle East involving the United States, Israel and Iran. The escalation of the conflict sparked concerns among investors about the stability of global energy supplies and its impact on world economic growth. The pressure triggered a broad sell-off in Asian stock markets, with Korea among the steepest decliners. The slide reflected growing investor worry about the impact of the conflict on energy prices, global inflation, and the outlook for economic growth. The Seoul Stock Exchange also briefly halted trading through the circuit-breaker mechanism after the index fell more than eight percent in a session. Analysts say the Kospi decline was driven not only by geopolitical sentiment but also by South Korea’s economy’s heavy reliance on global trade, energy imports, and the dominance of the technology sector within its stock market structure. The conflict intensified after a sequence of military strikes involving the United States and Israel on Iran, which then prompted retaliatory responses in the Middle East. The escalation raised concerns about the stability of global energy supply routes, particularly the Strait of Hormuz. This sea lane is one of the most important routes for global oil shipments. About a fifth of global oil supply passes through the Strait of Hormuz. Therefore, any disruption to this route could trigger a surge in energy prices and worsen global inflationary pressures. According to Stephen Innes of SPI Asset Management, the fall in Asian stock markets was not divorced from the direct impact of higher energy prices on regional economies. ‘Asian equities are now suffering losses for a third consecutive day, and the reason is not mysterious,’ Innes said, quoted by Channel News Asia on Thursday (5 March 2026). Innes explained that when crude oil prices rise, the heaviest impact is felt in Asia, where imported energy is not merely an expenditure item but also a structural dependency.