The central bank has predicted that a prolonged, severe war between Israel and Hamas will have a significant impact on the domestic economy within next year.

A report by the Bank of Korea(BOK) released on Friday indicated that the armed conflict will have a negative impact due largely to volatility in global oil prices and financial conditions.

The BOK revealed three scenarios and the impact on the South Korean economy, beginning with a contained conflict with an expedient resolution, which would limit volatility in the global market.

However, if the armed conflict expands with the involvement of Lebanon’s Hezbollah, global oil prices will soar and international financial conditions will worsen.

Lastly, the BOK predicts that if the armed conflict escalates with Iran’s participation, crude oil from the Middle East will be disrupted and the global financial market will be severely impacted.

The central bank added that the last two scenarios will impart a decline in South Korea’s growth rate and a spike in inflation on the back of decreased purchasing power and increased production costs given the nation’s status as a major oil importer with many manufacturers.