Double Setbacks Again! Amid US-Iran Conflicts, Why Have Japanese and South Korean Stock Markets Become the Biggest "Victims"?

AI · How Will Middle East Tensions Reshape Asia’s Energy Landscape?

Cailian Press, March 23 (Editor: Bian Chun) On Monday, Asia-Pacific stock markets declined across the board due to escalating threats between the US and Iran, raising concerns among investors about the ongoing escalation of tensions in the Middle East. Japanese and South Korean markets once again became the hardest-hit areas of sell-offs.

South Korea’s KOSPI index opened down 3.5%, with declines initially exceeding 6%. At the time of writing, it was down 4.71%, at 5,457.13 points.

After the KOSPI 200 futures dropped 5%, the Korea Exchange triggered the KOSPI index circuit breaker, pausing trading for 5 minutes.

In terms of heavyweight stocks, SK Hynix’s share price fell more than 5%; Samsung Electronics and Hyundai Motor both declined nearly 5%.

The Nikkei 225 index opened down 1.68%, with an intraday drop of over 2,600 points. At the time of writing, it was down 3.35%, at 51,582.23 points.

Futures of Japan’s Topix Growth Market 250 triggered a circuit breaker, and trading resumed at 9:40 AM local time.

Other stock markets also saw significant declines. As of the latest update, Australia’s benchmark S&P/ASX 200 fell nearly 1%, and the Hang Seng Index dropped over 3%.

US-Iran Confrontation Escalates

Last Saturday, U.S. President Trump threatened that if Iran does not fully reopen the Strait of Hormuz within 48 hours, he will “destroy” Iran’s power grid. This “ultimatum” was met with a strong response from Iran.

According to CCTV News, on March 21, U.S. President Trump posted on social media platform “Real Social” that if Iran fails to fully open the Strait of Hormuz within 48 hours without threats, the U.S. will target and completely destroy Iran’s power plants, starting with the largest one.

In the early hours of March 22, Iran’s armed forces’ Hatam-3 Central Command warned that, based on previous warnings, if Iran’s fuel and energy infrastructure are attacked, all energy infrastructure, IT systems, and seawater desalination facilities in the region will become targets.

Additionally, Iran’s Islamic Parliament Speaker, Kalibaf, posted on social media that if Iran’s power plants, energy, and oil facilities are attacked, all such targets in the region will be considered legitimate targets and will be irreversibly destroyed. Oil prices are expected to rise long-term.

Why Are Japan and South Korea Markets the First to React?

In this US-Iran conflict, Japan and South Korea’s stock markets have undoubtedly become the biggest “victims.” Whenever there are signs of escalation in US-Iran tensions, sell-offs in these markets are the most intense.

Analysts believe the core reason is that both Japan and South Korea are major importers of oil and natural gas, with high dependence on the Strait of Hormuz. Tensions in the Middle East cause oil prices to soar, sharply increasing energy costs for these countries and raising concerns about imported inflation.

Data shows that about 90% of Japan’s oil imports come from the Middle East, while roughly 70% of South Korea’s crude oil imports are from the region.

Goldman Sachs estimates that if oil transportation through the Strait of Hormuz is disrupted for 60 days, Japan’s economy could experience a temporary contraction. This risk has been a key concern for the Bank of Japan.

Citi recently forecasted that, given the worrying geopolitical situation in the Middle East, if oil prices remain high, South Korea’s GDP growth rate in 2026 could decrease by nearly 0.5 percentage points.

Another important reason for the strong reaction of Japan and South Korea’s markets is that both markets are highly concentrated in energy and supply chain-sensitive sectors.

Some analysts say that the shocks experienced by these markets are related both to the short-term impact on energy patterns and to specific characteristics of these markets. For example, both Japan and South Korea have a high proportion of international capital. When global geopolitical risks rise, international investors tend to reduce their risk exposure in these markets.

Additionally, both markets have a high weighting of cyclical sectors, such as Japan’s automotive, machinery, and chemical industries, and South Korea’s semiconductors, shipbuilding, and petrochemical industries. These sectors are highly sensitive to energy prices and global trade.

Since the outbreak of the US-Iran conflict, both Japan and South Korea have taken measures to mitigate the impact of potential oil supply disruptions on markets and the overall economy, such as Japan releasing record oil reserves and South Korea reintroducing the “oil price cap system” after 30 years.

According to recent reports, Japan plans to use about 800 billion yen from its budget reserves to curb gasoline prices.

On March 22, South Korea’s Finance Minister, Koo Yun-cheol, called for proactive policy measures at a cross-departmental meeting on the Middle East crisis, preparing for a prolonged crisis. Additionally, the ruling party’s spokesperson announced that South Korea will draft a supplementary budget of approximately 25 trillion won.

(Cailian Press, Bian Chun)