BOK Warns Prolonged Middle East War Could Push Oil Prices Higher

The Bank of Korea (BOK) has issued a warning that a prolonged Middle East war could push oil prices higher, weighing on South Korea's growth. The BOK forecast consumer inflation at 2.8 percent this year and 2.7 percent next year under its prolonged-stalemate scenario, with oil-price assumptions rising to $95 and $85 for Brent crude in the second half of this year and next year.

The BOK said its base-case forecast assumes Brent will average $86 a barrel in the second half of this year and $74 next year. However, it warned that oil prices have risen faster than anticipated as Brent surged to around $107 a barrel amid escalating tensions between the U.S. and Iran.

Under the prolonged Middle East war scenario, the BOK projected growth of 3.2 percent this year and 2.6 percent next year. The government has included 1.45 trillion won ($1.08 billion) in its 2027 budget proposal to compensate refiners for losses from the oil price cap system in the fourth quarter of this year.