Issue Middle East scenarios: early de-escalation or a prolonged stalemate and their effects on Korean growth and inflation

Summary

Military tensions in the Middle East rose again and uncertainty over progress in negotiations widened, so the Bank of Korea sets out two alternative paths. In an early de-escalation, talks between the United States and Iran advance in the third quarter and Hormuz shipping recovers quickly, with Brent falling to 76 dollars in the second half and 63 dollars in 2027. Korean growth would then be 0.1 points higher in 2026 and 0.2 points higher in 2027, while inflation would be 0.1 and 0.3 points lower. In a prolonged stalemate, talks stay deadlocked until 2027 and regional tensions rise, pushing Brent to 95 dollars in the second half before it eases to 85 dollars in 2027, lowering growth by 0.1 and 0.3 points and raising inflation by 0.1 and 0.4 points. The bank warns that if chip and Middle East shocks hit together, interactions through financial conditions, sentiment and investment could make the impact larger than the simple sum.