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'Stagflation' concerns surge across global markets as tensions continue to rise in Middle East

Published: 08 Mar. 2026, 19:32

Oil tankers are seen near the Seoul branch of the Daehan Oil Pipeline Corporation in Seongnam, Gyeonggi, on March 3, as prices are expected to surge with Iran closing the Strait of Hormuz, a key energy transport route. [YONHAP]

Concerns about a so-called stagflation, in which stagnant growth coincides with high unemployment and high inflation rates, across global financial markets have spread as tensions continue to rise in the Middle East, sharply increasing international oil prices and leading to emerging signs of a slowdown in the U.S. labor market.

Korea, which depends heavily on energy imports, is also facing simultaneous pressure from rising inflation and a weakening won, and experts are growing worried that the Bank of Korea’s (BOK) target of 2 percent economic growth this year may be difficult to achieve.

West Texas Intermediate crude for April delivery closed at $90.90 per barrel on the New York Mercantile Exchange on Friday. The price was up $9.89, or 12.21 percent, from the previous session. Its weekly increase reached about 35 percent, marking the largest weekly increase since crude oil futures trading began in 1983.

The rise comes as growing tensions in the Middle East heighten concerns about supply disruptions, with Kuwait Petroleum Corporation announcing on Sunday that it would pre-emptively reduce crude oil production in response to the tense situation.

Signs of a slowdown in the U.S. labor market have also appeared.

The Bureau of Labor Statistics under the U.S. Department of Labor said on Friday that nonfarm payrolls fell by 92,000 on month in February. The figure was far below market expectations compiled by Dow Jones, which had projected an increase of 59,000.

A worker operates valves at the Rumaila oil field as the country cuts nearly 1.5 million barrels per day of output amid halted exports following the closure of the Strait of Hormuz in Basra, Iraq, on March 4. [REUTERS/YONHAP]

“Fresh signs of labor weakness and oil-driven inflation concerns are cornering U.S. Federal Reserve officials into an uncomfortable choice,” Reuters reported on Friday, quoting a Federal Reserve official who said, “Both of our goals are risks now,” referring to the stabilization of the labor market and inflation.

Downward pressure on Korea’s growth outlook is also increasing.

When the BOK presented its forecast of 2 percent economic growth for this year on Feb. 26, it based the projection on an average Dubai crude price of $62 per barrel. With international oil prices now trading at much higher levels, the outlook has come under additional strain.

“Goldman Sachs estimates that a supply-driven jump in Brent ⁠crude from $70 to $85 would add roughly 0.7 percentage points to inflation across emerging Asia and knock about 0.5 points off economic growth while widening current account deficits across almost every economy in the region, particularly ⁠Thailand, Singapore and Korea,” Reuters reported on Tuesday.

The U.S. Federal Reserve building in Washington is seen on Sept. 17, 2025. [REUTERS/YONHAP]

The Hyundai Research Institute also projected that Korea’s economic growth rate could fall by 0.3 percentage points if international oil prices exceed an annual average of $100 per barrel. It said the decline could widen to 0.8 percentage points if prices exceed $150 per barrel.

Global investment bank Citi likewise stated that Korea’s growth rate could decline by about 0.45 percentage points if international oil prices remain above $82 per barrel throughout the year.

Exchange-rate volatility tied to the weakening won is adding even more pressure.

The average daily fluctuation in the won-dollar exchange rate reached 13.2 won from the beginning of March through Friday, according to the BOK’s Economic Statistics System. That was the highest level since March 2020, when the average fluctuation reached 13.8 won during the early days of the Covid-19 pandemic.

Higher oil prices and a weaker won ultimately result in raised import prices. That in turn can reduce consumption and weigh on economic growth.

Bank of Korea (BOK) officials, including Deputy Gov. Kim Woong, fourth from left, are seen during a press conference at the BOK headquarters in Jung District, central Seoul, on Nov. 27, 2025. [BANK OF KOREA]

“Rising oil prices due to the situation in the Middle East have increased upward pressure on inflation from the cost side,” said Kim Woong, a deputy governor at the BOK, during a meeting convened to review price conditions on Friday. “Future inflation trends will be greatly affected by movements in oil prices.”

“If the scenario being discussed in the United States — that the war could end within four to six weeks — does not materialize, Korea’s growth rate could fall below 2 percent,” said Kim Jin-ill, a professor of economics at Korea University. “If the rise in oil prices becomes prolonged, the risk of stagflation similar to that seen in the 1970s could increase.”

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY KIM DA-YOUNG [[email protected]]