Korea to raise oil price cap starting Friday as energy crisis looms

Cars wait to refuel at a gas station in a rest area on the Gyeongbu Expressway in southern Seoul’s Seocho District, Thursday. The government announced expanded tax cuts on automotive fuels as oil supply disruptions are expected to continue amid the conflict in the Middle East. Yonhap

The government will raise its ceiling on oil prices to take effect Friday, as increasing international oil prices are making it difficult to retain the current cap implemented two weeks ago.

It announced the scheme to stabilize costs on Thursday, following a cross-ministerial meeting at Cheong Wa Dae to assess the impact of the heightened Middle East conflict on Korea’s economy.

According to the government, the prices per liter will rise from 1,724 won ($1.15) to 1,934 won for gasoline, from 1,713 won to 1,923 won for diesel and from 1,320 won to 1,530 won for kerosene, in its second round of biweekly price updates since March 13. The decision was based on the international price increases and their impact on citizens’ daily lives.

The new pricing comes alongside a series of measures to ease financial pressure on drivers and industries amid oil supply disruptions. These measures include expanded fuel tax cuts — from 7 percent to 15 percent for gasoline and from 10 percent to 25 percent for diesel — and efforts to secure alternative liquefied natural gas (LNG) suppliers, following reports that Qatar declared force majeure on its contracts with several countries including Korea.

The government decided to extend the tax cut policy until May rather than the initial expiration in April, and also to expand the reduction rates. Under the measure, the fuel tax will decrease by 65 won per liter for gasoline, from 763 won to 698 won, and by 87 won for diesel, from 523 won to 436 won.

“International oil prices have risen significantly … and because such prices place too much burden on the public, we are also revising fuel taxes,” Deputy Prime Minister and Minister of Finance and Economy Koo Yun-cheol said during a press briefing after the cross-ministerial meeting.

President Lee Jae Myung presides over an emergency meeting at Cheong Wa Dae, Thursday, to review the impact of the escalating Middle East conflict on the Korean economy. Yonhap

President Lee Jae Myung presided over the meeting, which was attended by top Cheong Wa Dae secretaries and ministers, primarily those responsible for finance, budget, commerce and other economic security-related duties.

They discussed measures to secure supply routes, conserve energy, stabilize prices and protect the people's livelihoods, as the U.S.-Israeli conflict with Iran has persisted for nearly a month and heightened global energy risks.

The government plans to secure LNG, including through spot purchases and LNG swaps, following an agreement already signed on March 14 between Korea Gas Corp. and Japanese energy company JERA.

The alternative supply is being arranged in response to reports that Qatar’s state-owned energy company, QatarEnergy, has declared force majeure, signaling a temporary suspension of contractual obligations due to uncontrollable events, although the Korean government said it has not received an official notification from the Qatari side.

Beginning on Friday, the government will implement controls on exports of naphtha, a basic petrochemical feedstock refined from crude oil that serves as the starting material for nearly all industries.

Korea’s reliance on Middle Eastern naphtha is roughly 70 percent, similar to its crude oil dependence.

The government will also take measures to address potential production disruptions of urea for fertilizers, which rely about 20 percent on Middle Eastern imports, notably from Qatar.

Anti-hoarding measures will be enforced from Friday, along with actions against illegal or unfair practices.

About 20 items, such as manufactured goods and processed foods, affected by the Iran conflict, will be designated as special management items.

A supplementary budget worth 25 trillion won is also planned.

Meanwhile, the president called for active public participation to overcome the crisis.

Lee said the government has established a broad framework to respond to the crisis, but its success will depend on the full implementation of energy-saving measures, which will rely heavily on painstaking cooperation by the people.

“This crisis is not confined to a single country ... While there is no immediate solution to turn the situation around, it is precisely at times like this that we need solidarity — pooling our wisdom and sharing the burden — more than ever,” he said.

“The focus now is on ensuring the measures are fully and effectively implemented,” the president added, urging the government to “prepare in advance without overlooking even minor details” and calling on the public to “actively participate through small everyday actions.”

Additionally, he underlined a zero-tolerance policy against profiteering on high oil prices and stressed the need to conserve electricity more than ever. He noted that prices will be frozen to ease the public’s burden, but this in turn will aggravate the deficit of the already loss-making state-run Korea Electric Power Corp.

“A crisis is a true test that reveals the government’s capabilities without any embellishment. At the same time, it is also an opportunity for the government to demonstrate its ability to turn crisis into opportunity,” Lee said.