The aftermath of the US-Iran conflict, Gwangju and Jeonnam region's economy faces "Three Highs and Three Lows"

The shock to the Middle East triggered by the war between the United States and Iran has simultaneously driven up international oil prices, inflation, and logistics costs, with analyses indicating that the Gwangju and Jeonnam regional economies are rapidly shifting from a high-cost phase to a low-growth phase.

In its 29th issue of Gwangju Policy Focus, titled “Regional Economic Impact of the U.S.-Iran War,” published on the 28th, the Gwangju Institute examined how this situation affects not only regional industries but also people’s day-to-day lives. According to the report, after the United States launched airstrikes on Iran’s nuclear facilities in February, the blockade of the Strait of Hormuz continued, cutting Middle Eastern crude oil exports by about 60%, while international oil prices surged to $157.66 per barrel. With the Korean economy—where the dependence on crude oil imports is high—being highly sensitive to such external shocks, the regional economy was no exception. The institute explained that, as a result, energy costs and transportation expenses rose, while the burden from both exchange-rate pressures and increases in the cost of living piled on, leading to the so-called “3 highs” phenomenon of high oil prices, high exchange rates, and high inflation.

This shock quickly translated into households’ lived-experience economic sentiment. In fact, analyses found that everyday living costs rose by 2.2% in Gwangju and 2.5% in Jeonnam. Higher living costs mean a greater burden on items that people frequently spend on in daily life—such as food, transportation, and public utilities—creating strong pressure on low-income households and self-employed business owners. In addition, while the consumer price index is estimated to rise by 0.33%, real consumption is expected to fall by 0.6%, raising concerns about stagflation—prices rising amid an economic slowdown. The report in particular suggested that the point at which real consumption begins to recover could be delayed by up to 20 quarters from the first quarter, which can be read as a warning that weak domestic demand may not end in the short term.

In the industrial sector, signs were seen that production and investment conditions are worsening even faster. In an analysis assuming a 20% rise in oil prices, regional industrial output was estimated to decline by 1.2% in the energy industry, 0.64% in the processing and assembly industry, 0.59% in the basic materials industry, and 0.38% in the mobility industry. Rising energy prices tend to push up manufacturing costs across the board, and increases in ocean freight and disruptions to supply chains often lead to delayed delivery schedules and higher costs for imports and exports. In fact, 64.9% of companies identified rising shipping costs and supply chain disruptions as the biggest risk factors. The institute diagnosed that these cost shocks ultimately spread into the “3 lows” phenomenon—low logistics, low domestic demand, and low growth—acting as downward pressure on regional growth rates.

The research team proposed that, as countermeasures, efforts should be carried out in parallel for urgent defense of key industries, stabilization of people’s livelihoods, and the restructuring and reorganization of supply chain management systems. Specifically, they said that short-term measures such as joint energy purchasing and stockpiling, support for corporate costs, delivery-response measures, and supply chain stabilization should be prioritized. At the same time, they stated that the shock to neighborhood business districts should be reduced by monitoring living expenses, linking with regional currencies, lowering costs for small business owners, and providing support for digital transformation. They also suggested creating an integrated system that manages industry, prices, and logistics all at once, and building a joint response governance structure for Gwangju and Jeonnam. Going further, they emphasized the need for a mid- to long-term strategy to change the industrial structure with a focus on eco-friendly energy. The research team assessed that the impact of this war is not merely a temporary variable, but an event that reveals the vulnerabilities of the regional industrial structure. This kind of trend may continue to highlight, even more strongly, the need for regional economic restructuring as international instability persists.