Korea's energy shock: inflation pass-through is milder than in 2022, while growth pressure is concentrated in refining and petrochemicals

Overview

This report analyzes the impact of Middle East energy supply disruptions on Korea's economy, inflation, industries, policy, and markets. Korea is an export-oriented economy and heavily dependent on imported energy, so higher oil prices and a weaker KRW make policymaking and investment strategy more difficult. However, Goldman Sachs believes this shock differs from 2022: the current episode is more of an energy-specific supply shock, whereas 2022 also included broad inflation pressure from post-pandemic global demand for goods and services, supply-chain bottlenecks, and policy stimulus.

Core views

The key conclusions are: first, Korea's inflation pass-through from higher oil prices is currently weaker than in 2022, and government stabilization measures can materially buffer the impact of fuel and energy prices on CPI; second, the near-term growth risk is concentrated in refining, petrochemicals, and downstream industries, while AI and chip exports continue to support overall external demand; third, a weaker KRW further suppresses household purchasing power and consumption, but may also improve profitability for technology exporters; fourth, external accounts, fiscal revenues, and the housing-finance risk backdrop provide policy buffers; fifth, the BOK is highly likely to stay on hold in the near term, and the market may be pricing in too much tightening and hawkish risk.

Analysis framework

The report combines historical comparison, scenario analysis, and top-down/bottom-up inflation models to compare the current Middle East energy disruption with the energy shock that followed the 2022 Russia-Ukraine conflict, and assesses the impact through oil prices, exchange rates, fuel prices, administered prices, wages, industry output, the current account, fiscal revenues, housing-finance risk, and market valuations.

Methodology notes

• Macroeconomic scenario analysisBase and adverse oil price scenarios

  Compare Korea's macro outcomes under different durations of energy supply disruptions and oil price paths.

  The commodities team's base case assumes the Hormuz Strait remains closed until mid-April and then gradually normalizes over about one month; the adverse case assumes a longer closure and persistently elevated oil prices.

• Inflation pass-through analysisTop-down and bottom-up inflation models

  Estimate the CPI path from oil prices, exchange rates, energy prices, administered prices, and lagged pass-through.

  Under the base case, Q3 headline inflation is expected to average about 2.6%; if oil prices rise further and the KRW depreciates another 5%, Q3 inflation could be slightly above 3%.

• Industry shock assessmentRefining and petrochemicals GDP sensitivity

  Estimate the output drag on refining, petrochemicals, and downstream industries from supply disruptions in crude oil and naphtha.

  The report estimates that each month of disruption in refining and petrochemicals supply could reduce annual GDP by about 10bp.

• Market pricing assessmentInterest-rate and equity risk premium judgment

  Compare market pricing of inflation, policy, and equity earnings risks with Goldman Sachs' macro view.

  The report argues that rates markets are overpricing the risk of more than three hikes over the next 12 months, and that the recent fall in Korean equities is more a correction in risk appetite.

Asset mapping & comparison

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

• Korean rates

  The energy shock raises inflation uncertainty, but the growth downside risk is more prominent.

  Strengths

  Government price stabilization measures and fiscal room help ease inflation and activity downside pressure.

  Weaknesses

  If oil prices and the KRW both deteriorate, the upside inflation risk increases.

  Comparison

  Goldman Sachs believes the market pricing of more than three hikes over the next 12 months may be overestimating hawkish risk.

  Risks

  Changes in MPC leadership and the duration of energy disruptions could increase policy uncertainty.

• Korean equities

  The energy shock triggers a decline in risk appetite, but valuations have already fallen to low levels.

  Strengths

  AI and chip exports are strong, and KRW weakness may support the profitability of technology exporters.

  Weaknesses

  Consumption, refining, petrochemicals, and some small and mid-sized manufacturers are under pressure.

  Comparison

  Technology is showing a clear K-shaped divergence relative to consumption and traditional manufacturing.

  Risks

  If high oil prices persist, the KRW weakens further, or supply-chain disruptions last longer, earnings recovery may be delayed.

• KRW

  KRW weakness amplifies the inflation impact of oil prices when translated into local currency.

  Strengths

  Export-oriented technology firms may benefit from currency depreciation.

  Weaknesses

  Household purchasing power, domestic demand, and margins for local firms relying on dollar-priced imports are hurt.

  Comparison

  Similar to Korea's past experience, a weaker KRW is positive for technology earnings but negative for domestic demand.

  Risks

  If the KRW depreciates another 5% and oil prices rise further, Q3 inflation could be slightly above 3%.

• Crude oil and energy commodities

  The main exogenous variable in this shock, affecting inflation, the trade balance, and industry costs.

  Strengths

  Korean policy tools can partially cushion the pass-through of end-user fuel and energy prices.

  Weaknesses

  Dependence on imported energy is high, and refining and petrochemicals are highly sensitive to crude oil and naphtha supply.

  Comparison

  Oil prices are broadly comparable to the 2022-23 period, but the shock is more concentrated in energy supply.

  Risks

  A longer-than-expected Hormuz Strait closure or constrained alternative transportation would prolong the high-oil-price environment.

• Korean technology and semiconductor exports

  The AI cycle supports exports, the current account, and fiscal revenues, making it an important buffer against the energy shock.

  Strengths

  Strong exports, high sensitivity to KRW depreciation, and improving profitability can expand corporate tax revenues.

  Weaknesses

  High capital expenditure and the external demand cycle make earnings sensitive to the global tech cycle.

  Comparison

  Technology exports are clearly stronger than consumption and most manufacturing industries.

  Risks

  If global AI and chip demand cools, external and fiscal buffers will weaken.

Key data

• Report date2026-04-06The report was published at 6 April 2026 8:17AM HKT.
• BOK policy rate expectation2.5%Goldman Sachs expects the BOK to leave policy rates unchanged at the April meeting.
• Inflation peak under oil and FX shockQ3 baseline about 2.6%, upside scenario slightly above 3%If oil prices rise further and the KRW depreciates an additional 5%, Q3 headline inflation could be slightly above 3%.
• Inflation impact from government stabilization measuresabout -50bpFuel price caps contribute about 30bp, while tax cuts contribute about 20bp.
• Impact of refining and petrochemicals supply disruptionabout -10bp of annual GDP per monthThe longer the supply disruption lasts, the larger the incremental negative impact.
• Adverse oil price scenario2026 average US$103/barrelEven in this scenario, Korea's current account is still expected to be supported by AI and chip exports.
• 2026 current account surplusmore than 10% of GDPGoldman Sachs expects Korea's 2026 current account to potentially reach a record high.
• Supplementary budget tax increaseKRW25.2trnAbout 60% comes from corporate taxes, increasing room for fiscal spending.
• Incremental pretax profits for two major semiconductor companiesabout KRW370trnGoldman Sachs estimates this could generate more than KRW60trn in additional annual tax revenue.
• Korea base wage growth2.1% yoyThree-month average for January, the lowest since the 2020 pandemic outbreak.

Impact & implications

For investment implications, the energy shock is more of a growth risk than a pure inflation risk in the near term. The most negatively affected assets and industries include refining, petrochemicals, downstream plastics, rubber, coatings, tires, and delivery services, as well as household consumption and the KRW; relatively beneficiaries or buffers include semiconductors, AI-related technology exports, external accounts, and fiscal revenues. The report's conclusion on Korean rates and equities is that the market may be overreacting to inflation and hawkish policy risks, while the equity pullback is more likely a consolidation after a decline in risk appetite, leaving room for recovery.

Risks

• Middle East energy supply disruptions last longer than in the base case, resulting in higher oil prices for longer.
• Further KRW weakness combined with higher oil prices pushes up import costs and inflation.
• Tight crude and naphtha supply for refining and petrochemicals persists into Q2 and beyond, and some plants may shut completely.
• Household purchasing power is eroded by energy prices and FX shocks, keeping consumption weak.
• Changes in MPC leadership increase uncertainty around monetary policy communication and market expectations.
• If AI and chip exports fall short of expectations, the current account and fiscal buffers may weaken.

What to watch

• The closure and reopening pace of the Hormuz Strait, and whether oil prices stay above the base path.
• The KRW trend, especially whether an additional roughly 5% depreciation occurs.
• Korean local gasoline prices, fuel price caps, energy tax cuts, and administered price adjustments.
• Whether Q3 headline inflation stays near 2.6% or breaks above 3%.
• Operating rates at refining and petrochemical plants, and supply of key inputs such as naphtha.
• The degree of divergence between AI, chip, and non-tech manufacturing in Korea's export mix.
• The BOK's stance on the 2.5% policy rate at the April meeting and subsequent policy guidance.
• Housing prices, household loan growth, and bank lending changes.