The main reason is the escalating US-Israel military conflict with Iran, including airstrikes, retaliatory attacks, and Iran’s closure/threats to the Strait of Hormuz (a critical oil chokepoint). This has triggered a global risk-off panic and sharp surge in oil prices due to fears of prolonged supply disruptions and energy shocks.5
South Korea is extremely vulnerable because:
- It imports virtually all its crude oil (world’s 4th-largest importer), with ~70% from the Middle East/Gulf region.
- Higher energy costs directly hit inflation, corporate margins, and export competitiveness in an economy reliant on manufacturing and global trade.7
The sell-off has been amplified by heavy weighting in tech/semiconductor giants (Samsung Electronics and SK Hynix — top KOSPI components), which had driven a massive AI-fueled rally earlier in 2026 but are now down 10%+ each amid foreign outflows and higher input costs. Defense, refining, and shipping stocks rose as relative “winners,” but the broader market capitulated.16
Circuit breakers were triggered multiple times (first since 2024) to halt trading and curb panic. Analysts note this reverses the market’s strong recent performance, with positioning and global energy fears exacerbating the move. No other major factors (like domestic data) are cited in reports—it’s overwhelmingly tied to the Middle East geopolitics.14
Markets remain volatile; authorities have pledged measures to stabilize. This is playing out across Asia but hitting Korea hardest due to its energy dependence.