Prepare for lasting inflation even after war ends

Even if the Middle East conflict ends sooner than expected, oil prices are unlikely to return to previous levels, raising the risk that inflationary pressures will persist far longer than policymakers may hope. For South Korea, heavily reliant on energy imports, the threat is not temporary volatility but a sustained cost shock that could weigh on both growth and consumer prices.

According to the Korea Institute for International Economic Policy (KIEP) on Thursday, oil prices could hover around $90 per barrel even under an early ceasefire scenario, as damaged energy infrastructure would take time to restore. If the conflict drags on, prices could rise to $117, and in the event of further disruptions to energy facilities, they could spike to as high as $174. Even these estimates may represent a lower bound, the institute warned, noting that higher crude prices would ultimately feed through producer costs into consumer inflation.

Uncertainty surrounding the conflict is also intensifying. Donald Trump said the United States would hit Iran “extremely hard” in the coming weeks, while also suggesting that oil-importing countries should take responsibility for securing supplies in the Strait of Hormuz. Such rhetoric underscores the risk that geopolitical tensions could further destabilize global energy markets.

The impact is already visible. South Korea’s consumer prices rose 2.2 percent in March, with petroleum prices surging 9.9 percent despite government efforts to contain inflation. With a supplementary budget of around 26 trillion won set to be injected into the economy, upward pressure on prices is likely to intensify.

The greater concern is that persistent inflation could coincide with slowing consumption and growth, raising the specter of stagflation. Waiting for a swift resolution to the conflict is no longer a viable strategy. Policymakers must instead prepare for a prolonged period of elevated energy costs.

South Korea should respond with a comprehensive policy framework akin to a wartime economic strategy — diversifying crude import sources, strengthening energy conservation measures and increasing the utilization of nuclear power. The government must mobilize all available tools to mitigate the long-term inflation shock and safeguard economic stability.