What Happened

On the 10th local time, U.S. President Donald Trump rejected Iran's response to the U.S. peace proposal, dismissing it as "totally unacceptable." Iran's state-run Tasnim news agency reported that Iran emphasized an end to the war and the lifting of sanctions against Iran, but President Trump stated on his social media platform 'Truth Social' that Iran's proposal was unacceptable. This pours cold water on recent peace negotiation efforts in the Middle East and is interpreted as a sign that the unstable situation could be prolonged.

Why It Matters

President Trump's rejection of Iran's peace proposal clearly indicates that the resolution of geopolitical risks in the Middle East remains distant. Over the past few weeks, various issues such as armed clashes in the Strait of Hormuz and the possibility of Iran withdrawing from OPEC have combined, leading international oil prices to rise for 6 consecutive weeks. As stated by the BIS Governor, countries' fiscal policy responses to the risk of war are a double-edged sword that could actually fuel global inflation. This extends beyond a mere Middle East issue, significantly impacting global supply chains, energy markets, and the monetary policy decisions of central banks worldwide. In particular, if the conflict with Iran intensifies, moves by the UAE to withdraw from OPEC and pursue autonomous oil production and exports could further increase international oil price volatility.

Impact on the Korean Market

Escalating geopolitical tensions in the Middle East will act as direct inflationary pressure on the Korean economy. Korea relies on the Middle East for most of its crude oil imports, so rising oil prices will simultaneously push up producer prices and consumer prices, increasing household burdens. The government is already preparing for a second round of high oil price relief payments, but this is merely a short-term stopgap measure. Rising oil prices increase cost burdens for industries with a high proportion of raw material imports and lead to increased logistics costs, potentially resulting in overall corporate profitability deterioration. Furthermore, as safe-haven sentiment strengthens, the possibility of foreign capital outflow from the domestic stock market cannot be ruled out. With increasing pressure for interest rate hikes, it is expected to put a burden on the Bank of Korea's monetary policy operations.

Key Stock Analysis

  • WTI Crude Oil (WTI, commodity): As supply instability in the Middle East intensifies, WTI crude oil prices will face upward pressure. This could be positive for refiners' inventory valuation gains but may lead to demand contraction in the long term. Positive
  • Brent Crude Oil (BRENT, commodity): Similar to WTI, escalating Middle East tensions will drive Brent crude oil prices higher. Due to its role as a global oil price benchmark, its impact on the worldwide energy market is significant. Positive
  • Gold (GOLD, commodity): As geopolitical uncertainty increases, demand for gold, a safe-haven asset, rises. Investors are likely to prefer gold as a risk-hedging tool. Positive
  • Bitcoin (BTC, crypto): For some investors, Bitcoin may be perceived as 'digital gold' and emerge as an alternative safe-haven asset. However, given its high volatility, it is difficult to expect the same level of stability as traditional safe-haven assets. Positive
  • S-Oil (010950, stock): Rising oil prices can have a positive short-term impact on refining margins. However, prolonged high oil prices, reduced demand, and government pressure to cut fuel taxes could act as negative factors. Positive
  • SK Innovation (096770, stock): Similar to S-Oil, SK Innovation can expect improved refining margins due to rising oil prices. However, cost burdens in the battery business segment could offset this. Positive
  • Korea 10-Year Treasury Bond (KR10Y, bond): As inflation concerns grow and pressure for the Bank of Korea to raise its benchmark interest rate increases, long-term government bond yields are likely to rise, and bond prices are likely to fall. Negative

Future Scenarios

Optimistic Scenario: Despite President Trump's strong remarks, negotiations could resume through back-channel diplomatic efforts, or international mediation efforts could bear fruit, leading to a de-escalation of tensions. In this case, oil prices would stabilize, and inflationary pressures would somewhat ease. The market could regain risk-on sentiment.

Pessimistic Scenario: The Trump administration's hardline stance continues, and Iran also refuses to back down, potentially leading military tensions to peak. In extreme situations such as a blockade of the Strait of Hormuz, oil prices would skyrocket, and concerns about a global recession would intensify. In this case, the Korean economy could face the risk of stagflation, and the stock market is highly likely to experience a significant correction. Investors should closely monitor international oil price trends, diplomatic efforts by major countries, and statements from the Bank of Korea regarding inflation and interest rates. Particular attention will be paid to whether Middle East issues are discussed at the Trump-Xi Jinping summit scheduled for May 14.