Geographical distance offered no protection for South Korea's stock market, as tensions in Iran triggered a historic selloff. Despite being approximately 6,800 kilometers from Tehran, the market in Seoul suffered severe losses.
On March 3, the Korea Composite Stock Price Index (KOSPI), which had been a global leader since 2025, plunged 7.24%, marking its largest single-day drop in history. The following day, the index fell another 12.06%, touching 5,059.45 at one point. This represented a 19.86% decline from its peak of 6,313.27 reached on February 26 and triggered a trading halt for the first time since August 2024.
Within just two days, the market capitalization of South Korean stocks evaporated by 634.1 trillion won (approximately 3 trillion yuan). Although a rebound followed, the total value lost over the week remained high at 504.9 trillion won (about 2.4 trillion yuan).
What caused the world's best-performing stock market to become so vulnerable? Why did the crisis in the Strait of Hormuz so precisely impact this East Asian economy?
Before the crash, the South Korean stock market was in a state of euphoria. From the start of 2025 to the end of February 2026, the KOSPI index had surged 159.66%, outperforming all other major global markets. This bull run ignited widespread investment enthusiasm among the South Korean public, with tech stocks like Samsung Electronics becoming prime targets for market capital.
However, following military actions by the United States and Israel against Iran, the market faced a "Black Tuesday" on March 3. The KOSPI plummeted 7.24%, setting a new record for its worst single-day drop. On March 4, the index opened lower and continued to decline, triggering a 20-minute trading halt at 11:34 AM. This was the first circuit breaker activation due to a sharp fall since August 2024. By the close, the KOSPI was down 12.06%, again setting a new record for a single-day loss and barely holding above the 5,000-point level.
Over these two days, the KOSPI fell a cumulative 18.4%, wiping out 634.1 trillion won (around 3 trillion yuan) in market value.
Foreign investors, with their keen sense of market shifts, began exiting as early as January. In February, they set a record by net selling 19.9 trillion won (approximately 92.4 billion yuan). This came after foreign ownership of South Korean stocks had reached a five-year and eight-month high of 32.9% in December 2025.
In contrast to the foreign outflow, South Korean retail investors aggressively bought the dip. On March 3 and 4, their net purchases amounted to about 6 trillion won (roughly 28 billion yuan).
For instance, using Samsung Electronics as an example, data shows that foreign investors have been consistently reducing their holdings since February 13, while domestic retail investors have been buying on a large scale. Institutional investor activity has been relatively neutral.
It has been observed that many recent entrants to the stock market are "older individuals unfamiliar with the markets." Before April 2025, making money in the South Korean stock market was generally difficult. Those who invested in US stocks often mocked investors in Korean stocks.
The bull market that started last year created a "state of frenzy," where it seemed "everyone was buying Samsung Electronics." Investors who chased the rally at high levels likely suffered significant losses in this crash. There are pessimistic predictions that Samsung's share price might need to correct from its high of 170,000 won to around 140,000 won before stabilizing.
However, for early retail investors, this volatility may have "little impact." For example, an investor who bought Samsung at 130,000 won still holds a profit even after the sharp decline. But this fortune is not universal; those who bought recently might face severe financial strain.
Another, more rational investor represents a different approach. Having held Samsung Electronics for about three years, she still maintains a return of approximately 160%. She also used some cash to buy index-tracking ETFs during the dip. She admitted concerns about a correction due to the KOSPI's rapid short-term rise but noted that a sudden crash triggered by an unforeseen event like conflict in Iran is difficult to predict.
To stabilize the market, the chairman of South Korea's Financial Services Commission stated that authorities would actively utilize a market stabilization plan of up to 100 trillion won if volatility became excessive. The South Korean president announced this stabilization plan on March 5, after which the market stopped falling and rebounded, temporarily calming sentiment. That day, the KOSPI saw intraday gains expand to over 12%, closing up 9.63%.
The root of the South Korean market's sensitivity to the Strait of Hormuz situation lies in its highly vulnerable energy structure. The strait connects the Persian Gulf with the Arabian Sea, handling about 20% of global oil consumption and nearly one-third of seaborne traded oil volume, making it a critical global energy artery. As a country that relies almost entirely on imported crude oil, South Korea's economic vitality is closely tied to this "oil choke point."
A commander of Iran's Islamic Revolutionary Guard Corps stated on March 2 that any ship attempting to pass through the Strait of Hormuz would be destroyed. On March 6, the Joint Maritime Information Centre reported that ship traffic through the strait had fallen to single-digit levels, with only two commercial vessels recorded transiting in the past 24 hours. However, later that evening, an Iranian military spokesperson reaffirmed the security of the strait and Iran's control over it, stating they would not close it.
A macroeconomic analyst noted that South Korea's high dependence on crude oil imports via the Strait of Hormuz exposes its economy to greater potential risk. Unlike Europe and the US, which have lower reliance on the strait, South Korea's economy is highly dependent on foreign trade and is often called the world's "canary in the coal mine," making it more susceptible to the effects of a blockade or rising oil prices. The analyst also pointed out that the KOSPI's 75.6% gain in 2025 and approximately 50% rise in the first two months of this year had already built up significant vulnerability.
According to a January 2026 report from a Korean energy research institute, South Korea's dependence on imported energy was as high as 92.7% in November 2025. Specifically, about 70.7% of its crude oil imports and about 29% of its liquefied natural gas (LNG) imports came from the Middle East, with the vast majority of this energy needing to pass through the Strait of Hormuz. A blockade would severely impact South Korea's energy supply.
The analyst explained that the strait transports approximately 20 million barrels of oil per day. Disruptions could create a shortfall in the crude market. Assuming a full shutdown, and considering some Middle Eastern producers have alternative pipelines, a deficit of 8 to 10 million barrels per day could occur. With Brent crude prices already above $80 per barrel, the price impact would intensify the longer shipping disruptions last. If disruptions exceed one month, the probability of oil hitting $100 per barrel increases significantly.
On March 2, the spot price for Dubai crude, a benchmark for Middle Eastern oil, surged 13.41% in a single day to $80.79. Simultaneously, the South Korean won weakened substantially against the US dollar, briefly falling through the 1,500 level on March 4 to touch 1,506 won per dollar for the first time since 2009.
Global investment banks issued warnings. Morgan Stanley explicitly stated that, due to large oil and gas trade deficits, South Korea, Thailand, and India have relatively greater exposure to oil price increases within Asia. Analysis from Citibank was more specific, predicting that if Brent crude remains around $82 per barrel, South Korea's GDP growth this year could decrease by 0.45 percentage points, while consumer price inflation could rise by 0.60 percentage points. A Citigroup economist stated that the negative impact of rising oil prices on South Korea's growth and current account balance would be the most significant among major economies this year and next.
South Korea's Ministry of Finance stated that existing petroleum reserves are sufficient for 208 days and that it is prepared to release strategic reserves if necessary. Starting March 6, it will also crack down on hoarding and price gouging. To address the potential energy crisis, the government swiftly acted, issuing a Level 1 energy alert on March 5, the lowest level in a four-tier warning system, as a preventive measure.
Beyond external energy dependence, the structural characteristics of the South Korean stock market amplified the crisis's impact. The market is highly concentrated in a few tech giants, particularly in the semiconductor sector, making it exceptionally vulnerable to specific risks.
As of the close on March 6, just two memory chip giants, Samsung Electronics and SK Hynix, accounted for 40.7% of the KOSPI's total market capitalization. This means any negative shock to the chip industry is rapidly amplified and transmitted throughout the entire stock market, creating systemic risk.
Data shows that over the past year, Samsung Electronics' stock rose 246.59%, while SK Hynix surged 380.25%. However, over the past five days, Samsung fell 10.38% and SK Hynix dropped 12%, together losing about 230.69 trillion won (approximately 1.07 trillion yuan) in market value.
The analyst noted that the stable operation of South Korean manufacturing and tech giants like Samsung and SK Hynix relies on global energy prices and supply chain stability; naturally, their stock prices fell significantly due to the conflict.
Chip fabrication plants are major electricity consumers, requiring 24/7 stable power supply. Data shows that in the recent twelve-month period, LNG-powered generation accounted for 26.9% of South Korea's total electricity output. Tensions in the Strait of Hormuz directly push up LNG prices, which would significantly increase production costs for chipmakers, eroding profit expectations and putting pressure on their stock prices.
Commentary has pointed out that this crisis exposes the heavy reliance of high-tech economies like South Korea on fossil fuels, calling it a "dangerous vulnerability in the AI era." South Korea produces over half of the world's DRAM and NAND flash memory chips and is a major buyer of Qatari LNG. If LNG supplies from the Middle East were interrupted, South Korea's power supply would be rapidly affected, impacting the production capacity of these round-the-clock chip factories.
The CEO of an asset management firm stated that the extreme volatility of the South Korean stock market is closely related to its highly concentrated structure. When the chip cycle is strong, the index rises rapidly, but when investor sentiment turns risk-averse, the decline of a few heavyweight stocks can easily drag down the entire market. He remarked that such huge volatility is natural.
Additionally, South Korean retail investors often engage in leveraged trading. Many stocks are purchased on credit, especially the heavyweights, with investors putting down only 30% to 40% margin. When the risk from the Strait of Hormuz combines with these structural features of the South Korean market, the leveraged bets that once amplified gains can accelerate declines, making a record-breaking crash difficult to avoid.
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