Deng Tong, Golden Finance

March 4, 2026, the fifth day of the conflict in the Middle East.

But so far, the future of the war in the Middle East has not been clear. Iran's Islamic Revolutionary Guard Corps issued a statement on the evening of March 3, local time, stating that during the past four days of conflict, the US military and Israel violated their so-called false propaganda of "strike Iranian military targets" and carried out attacks on schools, hospitals, stadiums, restaurants, wedding venues and other places, killing more than 700 Iranian civilians and injuring many others. The Revolutionary Guards stated that these crimes and massacres will inevitably be responded to, and actions against the United States and Israel will continue to be carried out at a deeper level and in a wider dimension.

The U.S. Central Intelligence Agency has ordered the evacuation of all its branches located within the range of Iran's missiles, and the war may expand.

Iran claimed to have complete control over the Strait of Hormuz, and more than a dozen oil tankers were hit by artillery shells... After Iran declared a ban on navigation in the Strait of Hormuz, oil tankers, merchant ships and fishing boats were no longer able to pass through the strait.

As the core hub of the world's energy supply, the Middle East has a significant impact on the global energy market. Iran's complete blockade of the Strait of Hormuz is equivalent to cutting off the lifeline of global energy transportation. The economic impact of geopolitical conflicts has spread from the Middle East to the world.

The Korean stock market collapsed first...

1. South Korea’s stock market suffered its biggest one-day plunge since 2008

As panic continued to intensify, after South Korea's KOSPI index plummeted 8%, the circuit breaker mechanism was triggered and trading was suspended for 20 minutes. This is the first time the Korean stock market has triggered a circuit breaker since August 2024, and triggered trading restrictions for the second consecutive trading day. South Korea's KOSPI index closed down 12.11%, the largest single-day drop in history, at 5093.54 points. This week alone, US$430 billion has been wiped out of the market value of South Korea’s stock market.

Bank of Korea Governor Lee Chang-yong issued a strong warning to guard against excessive volatility in the foreign exchange market. Lee Chang-yong postponed his planned trip to Bangkok to attend International Monetary Fund (IMF) events and held an emergency meeting in Seoul with senior officials from the central bank and the Ministry of Finance to conduct a comprehensive assessment of the recent changes in core financial indicators such as the Korean won exchange rate and bond yields.

Ahn Hyung-jin, CEO of Billionfold Asset Management in Seoul, said: "The market volatility is so violent that prediction is almost impossible - analysis is of no help. Retail investors also seem to be hesitant, and buying has gradually decreased since yesterday. Although we have selected high-quality stocks and hedged them, this is not an obvious investment opportunity."

Not all stocks are falling. The situation in the Middle East may continue to be turbulent, and defense stocks continue their gains. Shares of LIG Nex1 and Hanwha Systems both rose more than 25% on the day.

LIG Nex1 stock price trend

Hanwha Systems stock price trend

Park So-jung, portfolio manager at Matthews Asia, said this "may create some opportunities for investors to take positions in companies and industries currently trading at attractive prices. Industrial companies such as Korean defense and shipbuilding may once again be the beneficiaries of global instability, supply constraints and South Korea's growing strategic importance."

2. South Korea’s lack of oil and gas resources paved the way for this stock market crash

South Korea’s dependence on Middle Eastern crude oil has increased following Russia’s invasion of Ukraine.

According to estimates from the U.S. Energy Information Administration (EIA), South Korea's fossil fuel import dependence is close to 98%. According to data from the Korea International Trade Association, South Korea relies almost entirely on imported energy. South Korea imports more than 70% of oil and 20% of natural gas from the Middle East.

Since South Korea relies almost entirely on imports of oil and gas resources, the recent global market turmoil caused by the Iran conflict has greatly intensified market concerns about the soaring cost of South Korea's energy imports, causing continued pressure on the South Korean won. The Bank of Korea emphasized that due to the evolution of the situation in the Middle East, the volatility of key financial indicators such as exchange rates, interest rates and stock markets may remain high in the coming period.

Rising oil prices can impact the economy by pushing up the price of goods such as motor fuel, transportation and food. If inflation (the rate at which prices rise) accelerates, that could also make central banks less likely to cut interest rates in the coming months.

Iwai Securities chief strategist Kazuaki Shimada pointed out: "Investors are selling risk assets, especially the Nikkei Index and the Korea Composite Stock Price Index, which have outperformed other major indexes, becoming targets of stronger selling as they try to lock in profits."

Stephen Innes of SPI Asset Management pointed out: "Asian stock markets are currently facing a third consecutive session of decline, and the reason is no mystery. When crude oil prices rise, Asia is most affected, because imported energy is not just a project, but a structural dependence. Export-oriented economies suddenly find that barrels of crude oil with rising prices are quietly waiting for them on every factory floor and shipping routes, so they have to recalculate profit margins."

3. Will the Korean stock market drag down the crypto market?

At present, investors are already worried that energy supply disruptions will push up key costs such as crude oil, thereby affecting the economic outlook. In the context of geopolitical conflicts and soaring oil prices, global risk assets tend to fluctuate simultaneously, and crypto assets have increasingly shown the characteristics of linkage with the stock market.

Cryptocurrency markets have been on a downward trend in recent months, with Bitcoin and other major cryptocurrencies retreating from earlier highs as macroeconomic headwinds and imbalanced institutional flows weighed on sentiment. Ongoing inflation and changing expectations for rate cuts from the Federal Reserve have dampened risk appetite, while cyclical geopolitical conflicts have exacerbated investors' selling of speculative assets.

Looking at the structure of South Korea’s local market. South Korea is one of the most active countries in the world for crypto trading. When the Korean won depreciates and the stock market plummets, retail investors' risk appetite decreases and they tend to reduce their positions in highly volatile assets, thus forming periodic selling pressure on the crypto market.

At this stage, the plunge in the Korean stock market and the sluggish stock markets in many countries around the world have not yet directly affected the price of BTC. As of press time, BTC was trading at $68,825.59, a 24-hour increase of 0.9%. However, if the conflict in the Middle East continues, financial markets, including cryptocurrency, may face greater tests.

Matrixport released a daily chart analysis saying that despite the significant escalation of the geopolitical situation, Bitcoin's reaction was unusually restrained. The overall feedback from the market is more like "worthy of attention", but there is no greater fluctuation. Bitcoin’s implied volatility rose from about 38% to 53%, but this level is not unusual. In fact, this is comparable to volatility levels seen in mid-November. What's more, it's still significantly below the 65% volatility high seen during the sharp sell-off in mid-February. In other words, recent geopolitical news has had a relatively limited impact on the Bitcoin options market. Historically, this controlled volatility response is often seen as a constructive signal for prices, as it means hedging demand is limited and there is no panic positioning in the market.

If this pattern continues, implied volatility may fall back again in the coming weeks, creating opportunities for traders to take advantage of recent changes in volatility.

Attachment: Stock market performance in other countries or regions

Goldman Sachs equity strategists believe: As tensions in the Middle East heat up and investors reassess capital expenditure risks related to artificial intelligence, global stock markets are likely to face a correction in the short term, but the probability of a full-scale bear market is still low. Strategists point out that current valuations are at elevated levels, making the market more vulnerable to corrections, but a correction could also provide buying opportunities, while the risk of deeper declines is limited. Strong economic growth, solid corporate earnings, and healthy private sector balance sheets should help buffer against systemic risks. Goldman Sachs said: "We still recommend diversification through broad geography, factors and industries to enhance risk-adjusted returns."