Goldman Sachs: Korea's energy shock is more supply-side, but policy and export buffers remain strong

Overview

This report examines the impact of Middle East energy supply disruptions on the Korean economy, inflation, growth, policy, and markets. South Korea is an export-oriented economy that is highly dependent on imported energy, so the path of energy prices affects inflation, consumption, the refining and petrochemical value chain, and the Bank of Korea's policy assessment. Goldman Sachs argues that this round of shocks is similar to 2022 in that oil prices are comparable, but different because the current shock is more concentrated in energy supply and lacks the broad post-pandemic demand overheating and supply-chain disruption seen in 2022.

Core views

The core view is: first, inflation pass-through in Korea is currently milder than in 2022, and government price-stabilization measures can materially soften the impact of higher oil prices on headline CPI; second, if oil prices rise further and KRW weakens again, Q3 inflation could still edge above 3%, but in the base case Q3 headline inflation is around 2.6%; third, the growth shock is mainly concentrated in refining, petrochemicals, and related downstream industries, while AI and chip exports continue to support external demand; fourth, Korea's current account surplus, tax revenue from chip companies, and property stabilization measures provide macro policy buffers; fifth, the Bank of Korea is likely to keep the policy rate at 2.5% in April, and the market is pricing inflation and hawkish policy risks too aggressively.

Analysis framework

The report combines historical comparison, scenario analysis, and top-down/bottom-up inflation forecasting. It compares the 2026 energy shock with the oil-price shock following Russia's invasion of Ukraine in 2022, and separately assesses the effects of oil prices, KRW exchange rates, government price-stabilization policies, demographics, supply-chain disruptions, the current account, fiscal revenue, and financial-stability factors on Korea's macroeconomy and markets.

Methodology notes

• Macro scenario analysisEnergy shock scenario comparison

  Comparison of 2022 and 2026 energy shocks

  The report compares the current Middle East energy disruption with the energy shock after the 2022 Russia-Ukraine conflict, noting that current oil prices are similar, but the shock is more supply-driven, whereas 2022 also included the post-pandemic rebound in demand, mismatches between services and goods demand, and supply-chain tightness.

• Inflation forecastingTop-down and bottom-up models

  Pass-through from oil prices, exchange rates, and administered prices

  The top-down model assumes inflation falls more quickly as oil prices and exchange rates normalize; the bottom-up model places more emphasis on the lagged pass-through of local energy prices, regulated prices, and electricity price adjustments, so the 2026-2027 inflation path is smoother.

• Industrial shock assessmentRefining and petrochemical supply disruption estimate

  Monthly GDP drag

  The report estimates that if supply disruptions in key feedstocks such as crude oil and naphtha affect the refining and petrochemical industries, each additional month would drag annual GDP by about 10bp, and the impact could spread downstream to plastics, rubber, paint, tires, and delivery services.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Korean rates

  The energy shock raises inflation uncertainty, but Goldman Sachs thinks the market is pricing in too many hikes.

  Strengths

  Government price-stabilization measures, fiscal buffers, and downside growth risks support the Bank of Korea staying on hold.

  Weaknesses

  If oil prices rise further and KRW weakens at the same time, inflation expectations could heat up again.

  Comparison

  Compared with 2022, this round transmits more mildly to inflation, and macro risk is more about growth than inflation.

  Risks

  Persistent Middle East disruptions, further KRW depreciation, and policy communication uncertainty from changes in the Bank of Korea leadership.

• Korean equities

  The energy shock is causing risk appetite to fade, but technology exports and the AI cycle are supporting earnings.

  Strengths

  The technology sector is supported by the AI/chip cycle and KRW depreciation, and valuations have already fallen to low levels.

  Weaknesses

  Consumer, non-tech manufacturing, and petrochemical-related supply chains are under pressure.

  Comparison

  Exports and domestic demand are diverging in a K-shaped pattern, with technology outperforming consumer and traditional manufacturing.

  Risks

  High oil prices, worsening global risk appetite, and feedstock supply disruptions that force company shutdowns.

• KRW

  KRW weakness amplifies imported energy inflation, but it also boosts earnings sensitivity for export-oriented technology companies.

  Strengths

  A large current account surplus and chip exports provide fundamental support.

  Weaknesses

  Dependence on imported energy means a weaker currency has negative pass-through to inflation and household purchasing power.

  Comparison

  Technology companies benefit from a weaker KRW, while domestic demand and smaller suppliers are more likely to be hurt.

  Risks

  Higher oil prices combined with KRW weakness could push Q3 inflation to slightly above 3%.

• Crude oil and energy imports

  Energy supply disruption is the core source of Korea's macro shock.

  Strengths

  The government can cushion end-user prices through price caps, tax relief, and administrative measures.

  Weaknesses

  South Korea is highly dependent on imported energy, and the refining and petrochemical sectors are sensitive to crude oil, naphtha, and other feedstocks.

  Comparison

  Compared with 2022, the current shock is more concentrated in energy supply rather than broad demand overheating.

  Risks

  A prolonged closure of the Strait of Hormuz, sustained high oil prices, and feedstock supply disruptions extending beyond Q2.

Key data

• Report date2026-04-06The report was published at 8:17 AM HKT on 6 April 2026.
• Bank of Korea policy rate view2.5%Goldman Sachs expects the Bank of Korea to keep the policy rate unchanged at the April monetary policy meeting.
• Q3 headline inflation in base case2.6%Under the base oil price scenario, Korea's headline inflation is expected to peak around Q3.
• Q3 inflation in upside scenarioslightly above 3%If oil prices rise further and the KRW weakens by an additional 5%, Q3 inflation could rise to slightly above 3%.
• Impact of stabilization measures on 2026 inflation-50bpThe fuel price cap contributes about 30bp, and the energy tax cut contributes about 20bp.
• Adverse 2026 oil price scenarioUS$103/bblEven under this adverse oil price scenario, Goldman Sachs still expects Korea's current account surplus to exceed 10% of GDP.
• GDP impact of energy disruptionroughly a 10bp drag on annual GDP for each additional monthThe impact mainly comes from supply disruptions in the refining and petrochemical industries.
• 2026 current account surplusabove 10% of GDPThe expected increase in chip exports should be enough to offset higher oil imports.
• Additional tax revenue from the supplementary budgetKRW25.2trnAbout 60% of this comes from corporate taxes.
• Estimated incremental pre-tax profit for semiconductor firmsabout KRW370trnGoldman estimates that higher 2026 pre-tax profits at the two large semiconductor firms could generate more than KRW60trn in additional tax revenue.

Impact & implications

From an investment and policy perspective, Korea's near-term macro risk is more about slowing growth than persistent high inflation. The energy shock will weigh on household purchasing power, consumption, and the refining and petrochemical value chain, but AI/chip exports, support for technology earnings from KRW depreciation, current account surplus, and improving fiscal revenue can provide offsets. The rates market may be pricing too much into future hikes, and the recent decline in Korean equities looks more like a risk-off adjustment in Goldman Sachs' view, with room to recover after consolidation.

Risks

• Middle East energy supply disruptions last longer than in the base case, keeping oil prices elevated for longer.
• Further KRW depreciation together with higher oil prices amplifies imported inflation and household purchasing-power losses.
• Refining and petrochemical companies cut output or shut down because of feedstock shortages, and the shock spreads downstream.
• Government price-stabilization measures fail to fully offset rising energy costs, with regulated prices catching up in 2027.
• Household debt and weak consumption limit domestic-demand recovery, widening the split between exports and consumption.
• Changes in Bank of Korea leadership increase uncertainty around policy communication and market expectations.

What to watch

• The closure and reopening progress of the Strait of Hormuz, and the duration of Middle East energy supply disruptions.
• Movements in Brent, the Dubai-Brent spread, refined-product margins, and local Korean gasoline prices.
• KRW exchange-rate trends, especially whether there is an additional depreciation pressure of about 5%.
• Whether Korea's Q3 headline inflation stays near the 2.6% base path or rises to the upside case of slightly above 3%.
• Operating rates at refining and petrochemical plants, especially whether feedstock supply remains severely constrained beyond Q2.
• Support to fiscal revenue from Korean chip exports, current account surplus, and semiconductor pre-tax profits.
• The Bank of Korea's April meeting and the impact of leadership changes after April 20 on rate communication.
• Whether Seoul metropolitan area housing prices, household loan growth, and bank lending trends continue to stabilize.