Albert Park, chief economist at the Asian Development Bank, warned that prolonged conflict in the Middle East could damage energy supply chains and keep oil prices elevated, putting downward pressure on South Korea’s economy.
Speaking at a media briefing on May 4 (local time) in Samarkand, Uzbekistan, Park said that even if the conflict ends, rebuilding damaged energy infrastructure could take years, locking in a “higher-for-longer” oil-price environment. Under that scenario, South Korea’s economic growth rate was estimated to fall by 0.9 percentage points in 2026 and 0.5 percentage points in 2027. The ADB’s April forecast for South Korea’s growth in 2026 and 2027 was 1.9% for each year.
In a new baseline scenario, the ADB projected average oil prices of $96 a barrel in 2026 and $80 in 2027. Park said the issue goes beyond shipping chokepoints, arguing that key infrastructure for global production capacity has been destroyed and would take three to five years to restore, creating structural supply constraints.
Park pointed to South Korea’s relatively high dependence on energy imports compared with other Asian economies. He said inflation could face stronger upward pressure due to second-round effects from energy prices. Park said strong first-quarter semiconductor exports could partly offset slower growth, but he also warned that Middle East-related disruptions in raw materials could hinder expanded chip production. “Overall, the growth forecast is more likely to be revised down,” he said.
Park stressed that the figures were not an updated ADB forecast. He said they were intended to estimate the pure impact of a negative external shock from the Middle East crisis, adding that actual growth could vary depending on offsetting factors such as semiconductor export strength. The ADB plans to release an updated outlook for South Korea in its July ADO update, reflecting both chip performance and developments in the Middle East.
On policy, Park advised against broad subsidies, saying they tend to concentrate benefits among higher-income households and increase fiscal burdens. He said policymakers should allow higher energy prices to signal the need for efficiency among consumers and businesses, while targeting support precisely to vulnerable groups. He also urged central banks to closely monitor second-round inflation effects, but cautioned against raising interest rates too early in ways that could restrain investment and growth.
Park offered a positive view of the current semiconductor cycle, saying it is being driven by artificial intelligence unlike past cycles. If AI delivers real productivity gains, he said, the cycle could have a relatively “long life.” Still, he cited data suggesting up to eight key materials used in semiconductor production are supplied from the Middle East, warning that prolonged conflict could raise prices or disrupt supplies and limit production expansion even if global demand remains strong.
The briefing also addressed the internationalization of the won. Yuji Yamashita, an ADB official who attended alongside Park, said true won internationalization should look beyond its use in payments for goods and services and include government bonds. He said South Korean government bonds have become a liquid and trusted asset for global investors after being included in the World Government Bond Index. If those bonds can be used as collateral in cross-border transactions, he said, investors may view the currency and bonds as a package, increasing the won’s usefulness not only in trade but across financial transactions.
* This article has been translated by AI.
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