"If Middle East Conditions Worsen, Next Year's Growth to Fall 0.16 Percentage Points and Inflation to Rise 0.32 Percentage Points"

National Assembly Budget Office Publishes "2027 NABO Economic Outlook"
Analyzes Macroeconomic Impact Under "Adverse Scenario"

An analysis has found that if the period of high oil prices is prolonged by escalating conflict in the Middle East, South Korea's real economic growth rate next year could fall by up to 0.16 percentage points, while consumer price inflation could rise by as much as 0.32 percentage points.

According to the "2027 NABO Economic Outlook" report published by the National Assembly Budget Office on the 22nd, the office estimated the macroeconomic impact under an "adverse scenario" in which high oil prices persist through the first half of next year because deteriorating conditions in the Middle East disrupt crude oil supplies.

A notice listing gasoline and diesel prices is displayed at a gas station in Yongsan-gu, Seoul, on April 3, as international oil prices surge following hardline remarks by U.S. President Donald Trump. 2026.04.03 Photo by Yoon Dongju

The scenario assumes that international oil prices surge to more than $110 per barrel in the fourth quarter of this year, as stalled negotiations between the United States and Iran, attacks by Houthi rebels on alternative shipping routes, and increased demand for heating oil during the winter coincide. Prices are then projected to stay around $95 per barrel (in the $90-$110 range) through the first half of next year before gradually falling to the $80 range in the second half.

The simulation found that if Middle East risks materialize, next year's real gross domestic product (GDP) growth rate would fall by 0.16 percentage points from the baseline scenario, which assumes an average annual oil price of around $76.70 per barrel. Consumer price inflation would rise by 0.32 percentage points above the baseline, increasing inflationary pressure.

Exports and imports are also expected to take a direct hit. The trade surplus next year is projected to be $17 billion smaller than under the baseline scenario. This is because import costs would rise sharply, given South Korea's vulnerable reliance on the Middle East for more than 70% of its crude oil imports.

The impact of high oil prices is also expected to show up immediately in this year's figures. Under the adverse scenario, this year's growth rate would fall by 0.06 percentage points, consumer price inflation would rise by 0.12 percentage points, and the trade surplus would decrease by $6 billion.

The National Assembly Budget Office said, "With the recent renewed deterioration in the Middle East conflict and a sharp rise in international oil prices, the likelihood of the previously established oil price stabilization scenario materializing is gradually declining." It added, "As the scale of oil price fluctuations could vary significantly depending on the possibility of a deal between the United States and Iran and the international community's diplomatic mediation efforts, it is necessary to closely monitor developments."

This content was produced with the assistance of AI translation services.