SEOUL, March 26 (Xinhua) -- Escalated Middle East tensions raised uncertainty over South Korea's financial stability, a central bank report said Thursday.

The Bank of Korea (BOK) said in its financial stability report that disruptions to the energy supply chain, caused by the expanded geopolitical risks in the Middle East, could lead to higher energy prices impacting both inflation and economic growth.

The central bank noted that a surge in risk-aversion sentiment could heighten volatility in the foreign exchange and the financial markets, stressing that energy-importing countries such as South Korea, which rely heavily on Middle Eastern crude oil, may experience a relatively greater impact.

The South Korean won versus U.S. dollar exchange rate, which had significantly fallen by late February, surged this month compared to other major currencies, driven by a strong U.S. dollar amid the spread of risk-aversion sentiment.

The domestic stock market, which had rapidly risen, experienced a sharp fall and increased volatility immediately after the Middle East conflict broke out.

The BOK cautioned that if the conflict is prolonged, foreign investors' flight to safe-haven assets will be strengthened, restricting the easing of volatility in stock prices and exchange rates.

If higher oil prices intensify supply-side inflationary pressures, market interest rates will face greater upward pressure due to growing concerns about global monetary tightening, the BOK added.