Seoul: The government announced Thursday it will implement a temporary fuel price cap system starting at midnight to help ease cost burdens amid supply concerns over the ongoing Middle East crisis, officials said Thursday.
According to Yonhap News Agency, the government revealed the initiative during a task force meeting of ministers responsible for managing market prices. This decision comes in response to fluctuating domestic fuel prices following the United States and Israel's airstrikes against Iran late last month. This marks the first time since 1997 that South Korea is employing a price ceiling system, enabled by a provision in the Petroleum Business Act that permits the industry minister to set a maximum sales price when oil prices significantly fluctuate, posing a threat to economic stability.
Under the newly implemented system, the government will establish maximum prices for oil products supplied to gas stations and distributors by South Korean refineries, as stated by the Ministry of Trade, Industry and Resources. The ministry noted that the price ceiling targets supplies from refineries rather than retail prices at gas stations, due to regional variations and differing business strategies and practices at these stations.
The initial price cap has been set at 1,724 won (US$1.17) per liter for regular gasoline, 1,713 won per liter for diesel, and 1,320 won per liter for lamp oil. These maximum price thresholds will be reassessed biweekly to accommodate shifts in international oil prices, according to Yang Ghi-wuk, deputy minister for trade, industry and resource security. This initiative comes in response to escalating fuel prices driven by the ongoing crisis in the Middle East.
The Ministry of Trade, Industry and Resources reports that since the Middle East unrest began on February 28, gasoline prices have risen by at least 200 won per liter and diesel prices by a minimum of 300 won per liter. As of Wednesday, the average retail gasoline price nationwide stood at 1,904.3 won per liter, up from 1,692.6 won on February 27, the day before the U.S. and Israeli airstrikes commenced. The average retail diesel price increased to 1,927.5 won from 1,597.2 won during the same period, according to data from the Korea National Oil Corp.
In addition to the price cap, the government plans to enforce export restrictions on fuel products covered by the cap to prevent excessive exports due to price differences between domestic and foreign markets. To address potential financial losses that refineries might incur due to the cap, the government intends to compensate losses once the program concludes.
The government aims to lift the price ceiling once domestic fuel prices stabilize, said Yang. Moreover, the government is committed to addressing unfair market practices such as hoarding and price gouging.
"The government decided to implement the petroleum price cap system to stabilize oil prices, respond to market distortions, such as excessive price hikes, and to make sure the burden of rising fuel prices is shared among the government, businesses and the people," Industry Minister Kim Jung-kwan stated. He emphasized that the government will not tolerate any actions that disrupt market order during these challenging times.
Last week, the government issued a precautionary alert regarding a potential resources crisis to proactively manage energy market volatility, seeking additional oil supplies from regions beyond the Middle East and devising a comprehensive plan for a possible release of oil reserves.