Seoul: The government plans to take steps to implement a capping system on local fuel prices this week, a senior presidential adviser said Monday, shortly after President Lee Jae Myung called for a swift launch of the system to contain a jump in gas prices as the U.S.-led war with Iran has intensified in the Middle East.
According to Yonhap News Agency, Kim Yong-beom, the presidential chief of staff for policy, told reporters that specific measures were discussed at a meeting with relevant ministries to "implement the price cap system to prevent abnormal pricing of petroleum products and improve price predictability."
If implemented, it would mark the first time since 1997 that South Korea has enforced the system, using a provision in the Petroleum Business Act that allows the industry minister to designate a maximum sales price when oil prices fluctuate sharply and threaten economic stability. Earlier in the day, Lee told an interministerial meeting that a swift implementation of the fuel price cap is needed as the price of Brent oil surged through US$100 per barrel.
Lee expressed concerns over the expanding uncertainty in the domestic and global economic environment, which poses a considerable burden on the Korean economy that relies heavily on global trade and energy imports from the Middle East. He emphasized the need for preemptive response measures, considering even the worst-case scenario.
Kim highlighted the government's focus on "asymmetry in pricing," where refiners and gas stations quickly raise prices but lower them slowly, and mentioned that authorities are also examining potential collusion, tax evasion, and other illegal practices. Additional measures to ease the impact of rising oil prices, such as expanding fuel tax cuts and providing direct subsidies to consumers, were also ordered for review by Lee.
As of Monday noon, the average gasoline price in Seoul exceeded 1,949 won (US$1.3) per liter, an 11 percent increase since February 27, following the U.S. and Israel's joint attacks on Iran. Kim stated that the volume of crude oil imports affected by a potential closure of the Strait of Hormuz is approximately 1.7 million barrels per day, while South Korea's oil reserves are sufficient for about 208 days.
In the event of a prolonged Middle East crisis, the government plans to exercise priority purchase rights to secure 20 million barrels jointly stockpiled from oil-producing countries and consider redirecting oil produced overseas by the state-run Korea National Oil Corp. to the domestic market. Other strategies include securing supplies that avoid the Strait of Hormuz and diversifying crude oil import sources.
With the Middle East accounting for about 14 percent of gas imports for this year, a disruption in Qatari gas production is anticipated. However, alternative supplies are expected to be secured through other channels, minimizing the likelihood of a major supply disruption.
Lee also urged the government and the Bank of Korea to prepare preemptive measures to address rising volatility in financial and foreign exchange markets, instructing authorities to expand the 100 trillion-won ($66.8 billion) market stabilization program if needed. He stressed the importance of identifying hidden risks and preparing response measures meticulously.
Furthermore, Lee called for coordination with strategic partner countries to explore alternative routes that bypass the Strait of Hormuz, addressing concerns over potential disruptions to energy supplies via this major global shipping route.