The U.S.-Israel military campaign against Iran has entered its fifth day. What is the current situation, and what information deserves attention?

822. South Korean President Lee Jae-myung convened an emergency meeting amid economic fallout from the Iran conflict. Should the conflict drag on, South Korea may face prolonged oil shortages. This prospect has already severely impacted the domestic stock market—yesterday’s decline even exceeded that following the U.S. 9/11 terrorist attacks. Meanwhile, the Korean won’s exchange rate against the U.S. dollar plunged to its lowest level since the global financial crisis. During the outbreak of hostilities, President Lee was abroad on official visits. He returned home yesterday, visibly grave. Markets rebounded slightly today; he has ordered officials to activate pre-established emergency market stabilization mechanisms, involving nearly $69 billion. These funds will be used to ensure stability in financial markets and the won’s exchange rate. Additionally, President Lee announced countermeasures targeting oil supply, instructing officials to accelerate diversification of petroleum import sources. However, implementation is extremely difficult, as all regional countries are simultaneously pursuing similar strategies. Moreover, soaring freight costs will further inflate import expenses. Accordingly, he explicitly stated that immediate fiscal support must be provided to South Korean shipping companies operating in the region. (March 5, 2026, 13:11) 821. Iranian sailors who survived a U.S. submarine attack in the Indian Ocean are currently undergoing rehabilitation at a hospital in Galle, a port city in Sri Lanka. Yesterday’s attack killed at least 87 people. According to Reuters, citing sources at Galle National Hospital and the Sri Lankan Navy, military rescue personnel recovered 87 bodies after the IRIS Dena issued a distress signal early Wednesday. Authorities said search-and-rescue operations for approximately 60 missing crew members aboard the vessel would continue Thursday. The hospital reported that the 32 rescued sailors are receiving treatment for minor injuries and are expected to be discharged Thursday. Two police officers stand guard outside Room 58, where nurses move briskly and doctors conduct morning rounds. (March 5, 2026, 12:41) 820. Saudi Arabia’s Ministry of Defense announced that a newly detected drone was shot down near the northern Al-Jouf region. Previously, the ministry reported intercepting three drones over eastern Al-Kharj Province. (March 5, 2026, 12:30) 819. According to AFP, IMF Managing Director Kristalina Georgieva stated: “If this conflict persists longer, it could clearly affect global energy prices, market sentiment, economic growth, and inflation—and pose new challenges for policymakers worldwide.” (March 5, 2026, 12:10) 818. Israel yesterday ordered Iran’s representative in Lebanon to leave the country within 24 hours. Iran appears to interpret this as a threat against its embassy and has warned that if its diplomatic missions are attacked, it will retaliate by striking any Israeli embassy. That deadline has now expired. (March 5, 2026, 12:01) 817. EU member states are providing military assistance to Cyprus to bolster its defenses, fearing spillover from the Middle East conflict. On Wednesday, local authorities closed the island’s international airport after a suspected drone approached its airspace—a third such incident since Sunday, when an Iranian-made drone caused minor damage to an airbase.

Re-examining the Middle East’s oil through the lens of a botched war

The multifaceted impacts of war-induced high oil prices continue to unfold. Oil is the lifeblood of the global economy. Soaring international oil and natural gas prices have severely disrupted the world economy. Surging fuel prices have also triggered severe inflation and other livelihood challenges across numerous countries—news reports on these issues are ubiquitous. The following discussion outlines these war-driven oil-price shocks and their consequences solely from macroeconomic and microeconomic perspectives. (I) Global economic growth in 2026 will slow, while inflation rises. At a press conference in Washington on March 19, 2026, IMF Spokesperson Julie Kozack stated that, based on the IMF’s empirical estimates, a 10% sustained one-year increase in energy prices would lift global inflation by 0.4 percentage points and reduce global output by 0.1–0.2%. If oil prices remain above $100 per barrel for an extended period, they will exert significant pressure on global inflation and economic activity. Following the outbreak of the U.S.-Israel-Iran war, the IMF’s latest World Economic Outlook report, released on April 14, 2026, projected that, assuming the Middle East conflict subsides by mid-year, global growth in 2026 would reach 3.1%—0.2 percentage points lower than its January forecast—while global inflation would rise to 4.4%, up 0.3 percentage points from 2025. Should the conflict and elevated oil prices persist longer, global growth in 2026 would fall to 2.5%, with inflation climbing to 5.4%. Under extreme scenarios, global growth could dip to around 2%, and inflation could surge to 5.8%. On May 4, 2026, speaking at the Milken Institute Global Conference in the United States, IMF Managing Director Georgieva stated that the continuation of the Middle East war means the IMF’s earlier 2026 forecasts—global growth slowing to 3.1% and inflation rising to 4.4%—are no longer valid. The ongoing war, oil prices hovering around or above $100 per barrel, and mounting inflationary pressures indicate that the IMF’s downside scenario has already materialized. If the war extends into 2027 and oil prices reach approximately $125 per barrel, even worse outcomes are expected—including higher inflation and a likely de-anchoring of inflation expectations. (II) The United States is suffering blowback from war-induced high oil prices. As the world’s largest oil producer—and despite having achieved energy independence—the U.S. both exports and imports large volumes of crude oil and refined products. Its domestic market remains highly integrated with global oil markets. As the instigator of the U.S.-Israel-Iran war, the U.S. is now directly feeling the impact of surging international oil prices, which have pushed domestic gasoline and diesel prices to four-year highs—posing a major challenge for President Trump and the U.S. government. Prior to the war’s outbreak on February 28, 2026, the national average retail price for regular gasoline in the U.S. stood at $2.98 per gallon, and diesel at $3.76 per gallon.

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The IMF warns that prolonged war and energy disruptions pose the greatest risk to the Middle East economy. Oil-exporting nations face contraction while dwindling inventories threaten larger price adjustments.

reuters

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