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The Kospi in Seoul closed down 12.1% at 5,093.54, triggering a temporary trading halt.
A circuit breaker was also activated on the tech-heavy Kosdaq which saw an even bigger drop of 14%.
Shares in Samsung Electronics fell 11.7% and the semiconductor supplier SK Hynix lost 9.6%, as investor optimism about AI demand for semiconductors was overwhelmed by concerns over energy security.
South Korea, which imports virtually all its crude oil and sources from the Middle East, was one of the world’s best-performing stock markets earlier this year but is now particularly exposed to the interruption in maritime trade caused by the Iran conflict.
The Strait of Hormuz has emerged as a major flashpoint. About 20 million barrels pass through it per day, mainly to energy-hungry economies in Asia including South Korea, Japan, China and India, which account for roughly 75% of the oil flows via the chokepoint, according to the US Energy Information Administration.
Oil prices continued to rise, though gains moderated after President Trump announced measures to safeguard shipping.
At the time of writing, US benchmark crude is trading at $77 per barrel, while international Brent crude is above $84, the highest price since 2024. Both contracts have surged roughly 15% since the start of the week and markets remain highly volatile.
In a post shared by the White House on X, President Trump stated he ordered the US Development Finance Corporation to offer political risk insurance and guarantees for maritime trade.
“If necessary, the United States Navy will begin escorting tankers through the Strait of Hormuz, as soon as possible,” President Trump added.
Nonetheless, analysts cautioned that the steps would only partly ease risks.
Higher insurance costs alone could add between $5 and $15 per barrel, with the “war premium” likely to remain in place amid ongoing attacks.
Asian markets slump
In Tokyo, the Nikkei 225 also dropped 3.9% but has since pared most of the intraday decline. However, the index is down more than 6% this week.
Japan, similar to South Korea and Taiwan, depends heavily on oil and natural gas imports from the Gulf region.
Hong Kong’s Hang Seng fell 2% to 25,249.48, while the Shanghai Composite lost around 1% closing at 4,082.47.
Taiwan’s Taiex also shed 4.4% to 32,829.
Francis Lun, chief executive of Venturesmart Asia, a Hong Kong-based financial services company, described the situation as increasingly serious.
“I think the Iran situation is getting out of hand, and I think that US President Donald Trump miscalculated enormously,” the CEO stated while adding that “the situation is very grim”.
The sell-off reflects broader anxiety that prolonged instability in the Middle East could squeeze corporate profits and slow the global economy, particularly for trade-dependent Asian nations.