Riders refuel their motorcycles at a gas station in the Hongdae district of Seoul, South Korea, Saturday, July 2, 2022.
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South Korea plans to impose price caps on fuel products for the first time in 30 years after oil prices soared on Monday in the wake of the Iran war.
President Lee Jae-myung told a news conference on Monday that the government would “immediately introduce” a cap on fuel prices, according to a television broadcast, adding that Seoul would consider ways to diversify its energy import sources.
Oil prices soared on Monday after the Middle East’s major producers cut production and the United States demanded “unconditional surrender” from Tehran over the weekend.
brent futures While it soared 13% to $104.7. US West Texas Intermediate Crude Oil Futures The stock soared 30% to $118.46, or 13% to $102.4, net of gains from the previous session. The 30% rise would be the biggest single-day rise since late 1988, according to LSEG data.
“We must promptly introduce and boldly implement a maximum price system for petroleum products, which have seen excessive price increases recently,” Lee said.
South Korean media Yonhap News reported that the average price of gasoline in Seoul exceeded 1,900 won ($1.28) per liter on Friday for the first time in nearly four years, and rose further to 1,945 won on Sunday.
“Responsive urgent measures are needed. We should work with strategic partners to quickly identify alternative supply routes that do not go through the Strait of Hormuz,” Lee said.
Last weekend, US President Donald Trump struck a defiant tone amid the price hike, saying higher oil prices in the “short term” were a “very small price” for defeating Iran’s nuclear threat.
“Only a fool would think otherwise!” Trump added.
Market stabilization
South Korea’s president said at a news conference that the Middle East crisis is putting a “grave burden” on South Korea’s economy, which is heavily dependent on trade and energy imports from the region.
He also called on authorities to “aggressively respond” to increased volatility in financial and foreign exchange markets.
Over the past week, the country’s benchmark Kospi The stock has been volatile, dropping 12% on Wednesday, its worst day on record, before jumping 10% again on Thursday and falling again on Friday and Monday.
Multiple futures trading limits were enacted in four sessions, and the Kospi enacted circuit breakers twice.
The Korean won also hit its lowest value against the dollar since 2009 on March 3, reaching an intraday high of 1,506.37 won, before rising to 1,457 won the next day and falling again from there.
Lee called on authorities to “aggressively expand” the 100 trillion won market stabilization program as needed and “actively prepare additional measures at the government and central bank levels.”
The stabilization program ordered by Mr Lee last week began on March 6 and is aimed at calming capital markets.
However, the Korean Economic Newspaper reported that South Korea’s president said the program was not aimed at artificially propping up stock prices and warned that authorities should avoid buying stocks in a way that distorts the market.
Reactions from other Asian markets
The Japanese government also reportedly instructed the country’s oil reserve storage facilities to prepare for the release of crude oil stocks, according to Reuters on Sunday.
Reuters, citing a Japanese lawmaker, said details such as the timing of the release remain unclear.
As of February, Japan had emergency oil reserves equivalent to 254 days of domestic consumption, according to government data.
On Friday, Vietnam announced that it would revise import taxes on fuel products to ensure energy security, and Reuters reported that the Southeast Asian country will eliminate import taxes on fuel.
Asian economies are particularly vulnerable to oil disruptions, according to a March 5 report from the Atlantic Council.
While China is the world’s largest oil importer, its domestic oil production is higher than countries such as Japan, South Korea and Taiwan.
“China’s economy is almost as oil-intensive as Japan or Taiwan, and much less than South Korea’s,” the Atlantic Council said, adding, “An oil crisis would therefore cause great pain, but could also empower China relative to its regional rivals.”
—CNBC’s Blair Baek contributed to this report.
