First Vice Finance Minister Kim Byoung-hwan presides over a governmentwide emergency meeting on the Middle East crisis in Seoul in this file photo provided by the Ministry of Economy and Finance, April 16. Yonhap

Korea will take "instant and bold" measures if volatility in the financial market grows excessively amid escalating tensions in the Middle East, the finance ministry said Tuesday.

The foreign exchange authorities also made a verbal intervention against the Korean won's sharp decline, vowing to stay vigilant.

Concerns about a wider conflict in the Middle East have grown further after Iran launched a drone and missile attack against Israel over the weekend in response to a suspected Israeli attack on Iran's embassy in Syria.

The international community has strongly condemned Iran's action but has called on Israel to show restraint.

"The incident has limited impact on our oil supplies, exports and imports, and supply chains. But we remain open to all possibilities and prepare for stronger responses as military tensions remain high," First Vice Finance Minister Kim Byoung-hwan said during a government-wide emergency meeting on the matter.

"If the market shows excessive volatility compared with our economic fundamentals, the government will take action instantly and boldly," he added.

On Tuesday, the benchmark Korea Composite Stock Price Index plunged 2.28 percent to close at 2,609.63, and the Korean won fell sharply against the U.S. dollar to a fresh low of the year of 1,394.50 won.

During intraday trading, the local currency had dropped to the psychological level of 1,400 won per dollar for the first time since 2022.

To curb the fall of the local currency, the foreign exchange authorities stepped in, saying they are closely monitoring the market with high vigilance and that excessive one-sided movement is far from desirable for the economy.

The ministry said the government has kept close tabs on global oil prices and its supply situation amid lingering concerns of inflation.

Korea depends on imports for most of its energy needs, and rising global oil prices have caused inflationary pressure to flare up in the country.

Dubai crude, the country's benchmark, has been on a constant rise in recent months, reaching $89.87 per barrel in April from $78.85 in January, $80.88 in February and $84.18 in March amid the Israel-Hamas war and other geopolitical uncertainties.

Consumer prices, a key gauge of inflation, increased 3.1 percent on-year in March, rising over 3 percent for the second consecutive month on high prices of fruits, fresh food items and energy.

In response to growing uncertainties in the Middle East, the Seoul government set up a joint emergency response team of related agencies to monitor the economic situation and financial market on a real-time basis and has drawn up countermeasures based on contingency plans, according to the ministry.

The government also decided to extend the tax cut on fuel consumption by an additional two months through the end of June. (Yonhap)