Under the shadow of the Iran war, South Korea's exports surged by 48% in March, with semiconductors becoming the core driver.

Under the shadow of the geopolitical and energy crisis triggered by the Iran War, South Korea's exports in March still showed resilience, with monthly export value breaking the $80 billion mark for the first time. Among these, semiconductor exports surpassed $30 billion for the first time, with AI demand as the absolute driving force.

Preliminary data released by South Korea’s Ministry of Trade, Industry and Energy on Wednesday showed that March exports surged 48.3% year-on-year to a record $86.13 billion, far exceeding the market survey median expectation of 42.9%. Imports grew 13.2% year-on-year to $60.4 billion, resulting in a record trade surplus of $25.74 billion.

This data sends a clear signal to the market: Despite energy price surges and logistical disruptions caused by Middle Eastern conflicts, the upswing in the global tech cycle—especially the explosion in AI infrastructure investment—is becoming a decisive force in supporting the core links of South Korean and global supply chains.

Semiconductor exports surpass $30 billion for the first time, AI demand becomes absolute driver

Semiconductors are undoubtedly the core engine of South Korea’s export surge in March. The data shows, semiconductor exports in March increased by 151.4% year-on-year, reaching $32.83 billion, nearly one-quarter of Korea's total exports, and breaking the $30 billion mark for the first time in history.

Behind this historic breakthrough is a sustained global frenzy for AI and data center investment. As home to global memory chip giants such as Samsung Electronics and SK Hynix, South Korea is fully enjoying the AI boom. Higher chip prices, coupled with one more working day compared to last year, jointly contributed to this robust growth.

Jeeho Yoon, economist at BNP Paribas, pointed out: “Memory chip prices have recently fallen, but remain higher than a year ago, supporting sustained strong export growth. Close attention to whether price momentum faces a sharp decline risk, and whether sales can maintain stable growth, will be crucial.”

Geopolitical conflicts impact energy supply chain, petrochemical exports under pressure

Though overall export figures are dazzling, the negative spillover effects of the Iran War on South Korea’s economy have begun to emerge. As a highly energy-import dependent country, reliant on Middle Eastern oil and gas, South Korea faces increasing import costs and inflation risks from rising crude prices.

Impacted by global oil price hikes triggered by Middle East conflict, Korean oil product exports in March surged 54.9% year-on-year to $5.1 billion. However, to address domestic supply shortages, the government imposed export restrictions on gasoline and diesel on March 13. As a result, gasoline and diesel export volumes dropped by 5% and 11% year-on-year, respectively.

More severe, as a key raw material for the petrochemical industry, March naphtha exports plummeted 22%. Last week, Korea imposed temporary export restrictions on naphtha, due to supply tightness after transportation through the Strait of Hormuz was disrupted since late February.

Jeeho Yoon warned: “Government restrictions on naphtha exports, and potentially on petrochemical products, could negatively impact exports. There are concerns these effects will partially show up in April export data, but we believe overall export growth will continue, driven by semiconductors.”

Strong U.S. market demand, Middle East exports plunge

From the perspective of export destinations, South Korea’s exports to both global economic giants showed strength. In March, exports to the United States also surged 47.1% to $16.34 billion, mainly driven by robust demand for chips and computers.

However, amid ongoing conflict, South Korean exports to the Middle East slumped 49.1% year-on-year to just $900 million, highlighting the direct impact of geopolitical risk on regional trade.

Policy response and central bank dilemma

To mitigate the secondary impact of the Middle East crisis on the economy, the government of President Lee Jae-myung has proposed a supplementary budget of about $17 billion (26.2 trillion won), to support consumers and businesses, including measures to ease high fuel costs.

For the Bank of Korea, strong exports and rising inflation risks create a complex policy environment. Board member Lee Soohyung warned that higher energy costs may drive up inflation, while unbalanced growth and tightening financing conditions will pressure vulnerable sectors, increasing credit risk.

The market is closely watching the rate decision to be announced on April 10. This will be the last rate meeting chaired by current governor Rhee Chang Yong, after which nominee Hyun Song Shin will take over. Investors will look for clues whether inflation risks will prompt the Bank of Korea to shift to a more hawkish policy stance.

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