International oil price volatility expands amid falling Trump approval ratings and concerns over prolonged Middle East tensions.

What Happened

Recent poll results show that U.S. President Donald Trump's approval rating has fallen to 34%, its lowest level since his second term. Dissatisfaction with the prolonged conflict with Iran and the resulting rise in oil prices are cited as major causes. Even President Trump's close aides are expressing concern that the prolonged stalemate in the Middle East conflict is 'the worst situation for the President,' with some hardliners advising that military action should be considered. Amidst this, international oil prices rose by nearly 3%, demonstrating the continued impact of Middle East-driven uncertainty on the market, even as geopolitical risks in the Strait of Hormuz remain high and despite news of the UAE's withdrawal from OPEC.

Why It Matters

President Trump's low approval rating could intensify domestic and international pressure on his foreign policy, particularly his Middle East policy. The prolonged tension in the Middle East casts continuous uncertainty over global energy supply chains and acts as a key factor in increasing international oil price volatility. The Strait of Hormuz is a strategic chokepoint accounting for approximately 20% of the world's seaborne oil shipments, and instability there could directly lead to a surge in international oil prices and an increase in global logistics costs. This could exacerbate global inflationary pressures and affect countries' monetary policies, potentially leading to interest rate hikes or delays in rate cuts. For countries highly dependent on energy imports, such as South Korea, this inevitably poses a significant burden on the overall economy.

Impact on the Korean Market

The prolonged geopolitical tension in the Middle East and rising oil prices have complex effects on the South Korean economy. First, high oil prices push up import costs, intensifying domestic inflationary pressures, which could burden the Bank of Korea's monetary policy operations. Downward pressure on the Korean Won's value could also intensify, further fueling import price increases. Energy-related industries such as refining and petrochemicals are directly affected by oil price volatility, while transportation sectors like aviation and shipping will face increased cost burdens due to rising fuel prices. Furthermore, rising power generation costs raise concerns about the deteriorating financial health of Korea Electric Power Corporation (KEPCO), which could lead to pressure for electricity rate hikes, increasing the burden on households and businesses. In terms of investor sentiment, heightened geopolitical risks tend to strengthen safe-haven asset preferences, potentially increasing stock market volatility.

Key Stock Analysis

• SK Innovation (096770, stock, positive): Rising international oil prices can lead to increased inventory valuation gains and improved refining margins in the refining segment, positively impacting performance. However, increased cost burdens could be negative for the petrochemical segment, so the impact may be offset depending on the business portfolio.
• S-Oil (010950, stock, positive): Similar to SK Innovation, improved profitability in the refining segment is expected due to rising oil prices. Supply uncertainty from the Middle East acts as a short-term factor supporting oil prices, likely leading to strong refining margins.
• Korean Air (003490, stock, negative): Rising oil prices directly translate to increased aviation fuel purchase costs, intensifying the cost burden on airlines. This could lead to deteriorating profitability, and tensions in the Middle East could increase uncertainty in air transport routes, causing additional costs such as operational disruptions and higher insurance premiums.
• HMM (011200, stock, negative): Rising international oil prices lead to an increase in bunker fuel prices, a shipping operational cost, thereby deteriorating the profitability of shipping companies. Furthermore, tensions in the Strait of Hormuz increase uncertainty in maritime shipping routes, amplifying freight rate volatility, and there is a possibility of additional costs due to logistics delays.
• Korea Electric Power Corporation (015760, stock, negative): Rising oil prices exert upward pressure on the prices of LNG and bituminous coal, which are power generation raw materials, thereby increasing power generation costs. While this acts as a factor for electricity rate hikes, government control over rates means that the cost burden could directly lead to KEPCO's financial deterioration, making it very negative for its performance.
• WTI (WTI, commodity, positive): The prolonged geopolitical tension in the Middle East and uncertainty in the Strait of Hormuz heighten concerns about crude oil supply disruptions, acting as upward pressure on WTI oil prices. A decline in Trump's approval rating could increase policy uncertainty and amplify market anxiety.
• KR10Y (KR10Y, bond, negative): Rising oil prices could intensify domestic inflationary pressures, increasing expectations for a Bank of Korea interest rate hike or lowering expectations for a cut, thus acting as a factor for rising bond yields (falling bond prices). Downward pressure on the Korean Won also burdens the bond market.
• GOLD (GOLD, commodity, positive): Heightened geopolitical tensions and increased economic uncertainty act as factors that boost investment demand for gold, a representative safe-haven asset, potentially driving up its price. This is because gold is highlighted as a means of asset preservation during times of crisis.

Future Scenarios

Geopolitical tensions in the Middle East are unlikely to be resolved in the short term, and President Trump's declining approval rating could further increase uncertainty regarding his policy decisions. An optimistic scenario involves the gradual easing of tensions in the Middle East through international diplomatic efforts, leading to oil price stabilization and limited negative impacts on the global economy. In this case, the South Korean economy could escape high oil price-driven inflationary pressures and continue its recovery. However, a pessimistic scenario involves further escalation of Middle East tensions, leading to extreme situations such as a blockade of the Strait of Hormuz, a surge in international oil prices, and the realization of global recession and stagflation concerns. Investors should closely monitor changes in the Trump administration's Middle East policy, negotiation trends with Iran, and OPEC+'s crude oil production adjustment movements, while staying highly attuned to changes in energy prices and global economic indicators. Domestically, in particular, the impact of rising oil prices on inflation and interest rates must be continuously monitored.