[비즈한국] With geopolitical risks in the Middle East escalating rapidly following the US strike on Iran's Kharg Island, concerns are mounting that both international oil prices and exchange rates could simultaneously swing wildly. If global energy supply instability becomes a reality, the impact could spill over into domestic prices and internal demand, likely accelerating discussions on the government's roughly 20 trillion won 'Cherry Blossom Supplementary Budget'.
On the 14th, US President Donald Trump stated on his social media platform, Truth Social, "A short while ago, under my direction, the US Central Command carried out one of the most powerful strikes in Middle Eastern history," adding, "We have completely annihilated all military targets on Iran's Kharg Island." Kharg Island is a key hub handling 80-90% of Iran's crude oil exports, and this measure is interpreted as high-intensity pressure aimed at the Iranian regime.
While President Trump stated that oil facilities were not directly targeted in this attack, he left open the possibility of escalating the level of response in the future. He warned, "Out of moral consideration, I decided not to destroy oil infrastructure," but added, "If anyone attempts to interfere with the free and safe passage of ships through the Strait of Hormuz, I will reconsider this decision." Since then, foreign media reports suggesting that if Iran's oil and energy infrastructure were attacked, the Iranian military could target the energy facilities of US-allied oil companies in the Middle East have further heightened market tension.
International oil prices are already under upward pressure. Prior to the Kharg Island strike on the 13th, May Brent crude futures closed at $103.14 per barrel, up 2.67% ($2.68) from the previous day, while April West Texas Intermediate (WTI) futures at the New York Mercantile Exchange closed at $98.71, up 3.11% ($2.98), reaching their highest level in three years. Given the volatile situation, oil prices are highly likely to surge further when the international market opens next week.
The exchange rate is also unstable. The KRW/USD exchange rate closed at 1,499 won on the 13th, already threatening the 1,500 won threshold again. As a high exchange rate is a factor that fuels inflation by stimulating import prices, the burden on domestic consumer prices could grow even heavier if coupled with rising oil prices.
The simultaneous rise in international oil prices and the exchange rate could reignite domestic petroleum prices, which had shown signs of stabilizing recently. According to the Korea National Oil Corporation, retail gasoline and diesel prices at gas stations nationwide had appeared to regain stability following the implementation of a price ceiling after peaking on the 10th. However, considering that changes in international oil prices are typically reflected in domestic gas station prices with a 2-3 week lag, concerns are emerging that the shock of the Kharg Island incident could reappear on gas station price boards starting late this month.
As the instability in the international situation spreads into concerns about an economic slowdown, the government is also beginning to seriously consider a large-scale supplementary budget as a card to minimize the impact on the real economy. The scale of this fiscal injection, dubbed the 'Cherry Blossom Supplementary Budget', is being discussed at around 20 trillion won, exceeding the market's expectation of 10 trillion won. The government plans to finalize the compilation of the supplementary budget within a month, submit it to the National Assembly next month, and complete the execution of the budget within the first half of the year.
The supplementary budget is highly likely to include measures for additional fuel subsidies for truck drivers, public transport workers, and farmers and fishermen as a priority. It is reported that selective support measures using local currency are also being reviewed to achieve the effect of both preserving sales for local businesses and boosting consumption, rather than simple cash support. In addition, it is highly likely to include freezing public utility charges (electricity and gas) in the first half of the year and expanding discount support for stabilizing the prices of agricultural and fishery products.
The government's policy is to compile the supplementary budget by securing financial resources without issuing deficit-covering government bonds. This is because an excess tax revenue of approximately 15 trillion won is expected due to an increase in corporate tax prepayments from strong semiconductor exports last year, as well as increases in income tax due to expanded bonus payments and securities transaction tax from the revitalization of the stock market. The government plans to finalize the total excess tax revenue based on the corporate tax filing results, which will be completed at the end of this month.
Lim Ki-keun, Acting Minister of the Ministry of Planning and Budget, said at the 'Inter-ministerial Vice-Ministers' Meeting on Middle East Situation' held at the Government Complex Seoul on the 13th, "Global economic uncertainty has recently been expanding rapidly, and rapid and preemptive responses are essential to minimize damage to our economy," adding, "By compiling the supplementary budget using excess tax revenue, we intend to minimize the impact on the government bond and foreign exchange markets."