Two Washington-driven shocks landed on the same day, and both trace back to the same underlying conflict
Friday, July 24 delivered a one-two punch for Korean markets. Brent crude broke above $100 a barrel for the first time since May as the US-Iran war passed its two-week mark, and at the stroke of midnight the same day, a new US tariff regime took effect, placing Korea in a 12.5% bracket. Neither shock was isolated. Both trace back to the same underlying conflict, and together they help explain why Korean automakers posted a rough earnings season and why the KOSPI has been under such heavy pressure. Today we break down what happened, why it matters, and what experts are watching next.
Oil Tops $100 as the US-Iran War Passes Two Weeks
The US-Iran war has now stretched past two weeks, with more than 13 consecutive nights of US strikes. This week, Brent crude broke above the $100-a-barrel mark for the first time since May, after Houthi forces attacked two Saudi oil tankers in the Red Sea. Prices then eased roughly 4% on Friday to settle near $97, as reports of possible US-Iran diplomatic contact and continued tanker traffic through the Red Sea calmed the most acute fears. Even with that pullback, Brent finished the week up nearly 14%, and roughly 30% for the month of July alone. WTI crude touched its highest level since June.
The rhetoric out of Washington has only added to the uncertainty. President Trump told Axios he is close to a decision on further military action, saying a massive attack, bigger than ever before, is possible, and that he is close to making a decision. He has also threatened to strike an Iranian bridge or power plant for every vessel attacked in the Strait of Hormuz. Iran’s army, for its part, said it carried out retaliatory drone strikes on US bases in Bahrain and Jordan.
Forecasters are taking the risk seriously. Rapidan Energy Group raised its fourth-quarter Brent forecast to nearly $100 a barrel, up from a prior estimate of $85, citing prolonged disruptions of trade through the Strait of Hormuz, and warned that Brent could climb into the mid-$100 range in the coming months if lingering optimism over a peace agreement fades.
This is the direct channel connecting the Middle East conflict to Korean markets: higher crude revives inflation fears, weighs on an import-dependent economy like Korea’s, pressures the won, and was one of the prime drivers behind the KOSPI’s sharp Friday decline, which we cover in a separate post.
At the Same Moment, a New US Tariff Regime Takes Effect
At 12:01 a.m. ET on Friday, the temporary 10% global tariff that had been in place under Trade Act Section 122, imposed after the Supreme Court struck down the earlier IEEPA-based reciprocal tariffs in February, officially expired. In its place, new Section 301 forced-labor tariffs took effect on 60 economies, covering an estimated 99.4% of US imports. The new structure applies a 10% rate to partners with existing import bans or firm compliance commitments, and a 12.5% rate to those without. South Korea was placed in the 12.5% tier, alongside Japan and Switzerland.
Korea’s trade ministry said Washington reaffirmed the 15% tariff cap agreed under last year’s bilateral deal, in which Korea pledged $350 billion in US investment in exchange for a lower rate. Under the new mechanism, for Korean goods whose existing most-favored-nation rate sits below 12.5%, the US will add the difference to bring the total up to 12.5%; goods already taxed at 12.5% or higher face no additional duty. Seoul pushed back on the forced labor designation itself, with Industry Minister Kim Jung-kwan arguing that the factual basis for the label doesn’t hold up. Korea exported $122.9 billion in goods to the US last year, making the US its second-largest trading partner.
A bigger risk still looms in the background: a separate, ongoing Section 301 investigation into structural excess capacity, or overproduction, covering 16 economies including Korea, China, the EU, Japan, and Taiwan. If that inquiry results in additional duties layered on top of the new forced-labor tariff, Korea’s effective rate could end up well above the 15% cap the two governments agreed to.
Where the Two Shocks Converge: Korean Automakers’ Earnings
The clearest early evidence of these twin pressures showed up in Korean auto earnings released the same week. Kia posted record quarterly revenue of 33.037 trillion won, but operating profit fell 4.9% year-over-year to 2.6285 trillion won, weighed down by US tariffs, dealer incentives, and a weaker won; its shares plunged nearly 12.8% to 130,600 won on the news. Hyundai Motor’s operating profit fell an even steeper 20-21% to roughly 2.9 trillion won, missing forecasts, even though its shares had initially risen about 2% when results were first released. Hyundai Wia, the auto parts affiliate, saw operating profit drop 10.6% to 50.4 billion won.
Record revenue paired with falling profit is a textbook tariff signature: companies are still selling plenty of cars, but a growing share of each sale’s value is being absorbed by import duties and the incentives needed to stay price-competitive in the US market.
Investor Takeaways and Expert Views
⚠️ Things Investors Should Watch
- The overproduction investigation is the real wildcard: The 12.5% forced-labor tariff is now confirmed, but the separate Section 301 overproduction probe covering Korea could add further duties on top of it. Until that investigation concludes, the true final tariff rate on Korean exports remains uncertain.
- Oil-driven inflation and geopolitical risk are tightly linked right now: With Trump signaling he is close to a major military decision, oil prices could move sharply in either direction on short notice. A prolonged Strait of Hormuz disruption could push Brent toward the mid-$100s, per Rapidan’s revised forecast.
- Watch which sectors absorb tariff costs versus pass them on: Kia and Hyundai chose to absorb much of the tariff impact through incentives and pricing rather than raising sticker prices sharply, protecting market share at the expense of margins. Whether this strategy holds if tariffs rise further is a key question for auto investors.
- The won’s trajectory matters as much as the tariff rate itself: A weaker won was cited alongside tariffs as a drag on Kia’s results. Currency moves and trade policy are compounding each other rather than operating independently.
📌 What Experts Are Saying
- Rapidan Energy Group: Raised its Q4 Brent forecast to nearly $100 a barrel, up from $85, citing prolonged Strait of Hormuz disruptions, and warned prices could climb into the mid-$100s if hopes for a peace agreement fade.
- Kim Jung-kwan, Korea’s Industry Minister: Pushed back on the US forced labor designation applied to Korea, arguing the factual basis behind the label does not hold up, even as Seoul works to keep the overall tariff rate within the previously agreed 15% cap.
- Korea’s trade ministry: Confirmed that Washington reaffirmed the 15% cap negotiated under last year’s bilateral investment deal, even as the new 12.5% baseline tariff took effect alongside it.
Taken together, Friday’s twin shocks are a reminder that geopolitical risk and trade policy are no longer separate storylines for Korean markets. They are increasingly the same story, playing out through oil prices, tariff schedules, and corporate earnings all at once. The overproduction tariff investigation and the trajectory of the US-Iran conflict are the two variables most likely to determine whether this pressure eases or intensifies in the weeks ahead.
Sources
- Seoul Economic Daily, Kia Operating Profit Falls 5%, Shares Plunge Nearly 13% (en.sedaily.com)
- Seoul Economic Daily, KOSPI Ends Down 5% on Sell-Side Sidecar; Samsung, SK hynix Plunge 8% (en.sedaily.com)
- Seoul Economic Daily, KOSPI Nears Correction; Analysts See 6,000 as Strong Support (en.sedaily.com)
- Rapidan Energy Group Q4 Brent crude forecast commentary
- Axios, Trump interview on potential military action against Iran
- Korea Ministry of Trade, Industry and Energy, statements on Section 301 tariff classification