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 stepped up its emergency economic plan on Wednesday, as Prime Minister Kim Min-seok warned that the government must prepare for the “worst-case scenario” of the Middle East conflict, which shows no signs of letting up.
The prime minister said at a press conference that the government plans to set up an emergency economic task force headed by Kim to coordinate cross-ministerial efforts, Yonhap News reported.
“The time has come to strengthen the government’s pre-emptive response system in order to prepare for a prolonged situation, including the worst-case scenario,” Kim said.
The group, which meets twice a week and is divided into five working groups, oversees the impact of the war on energy, macroeconomics, financial markets, and household finances, as well as monitoring the situation overseas.
Separately, an emergency economic situation office will also be established in the presidential palace, Kim added.
The move follows South Korean President Lee Jae-myung’s directive on Tuesday to activate a pre-emptive emergency response system as the South Korean government steps up efforts to manage the economic impact of the conflict.
The Asian country imports about 70% of its crude oil and 20% of its liquefied natural gas from the Middle East, making its economy particularly vulnerable to long-term disruptions to energy flows.
The Strait of Hormuz, a narrow waterway that connects the Persian Gulf and the Gulf of Oman and carries one-fifth of the world’s energy flows, has been effectively closed by Iran since the war began on February 28. The disruption has rattled global energy markets and reignited inflationary pressures stemming from soaring energy prices.
As the turmoil in Iran deepens, South Korea has taken several emergency measures to curb soaring energy prices, including imposing fuel price caps for the first time in nearly 30 years.
According to the company, the price cap could reduce retail fuel prices by about 8% per year on average. goldman sachs” is estimated.
The government also restricted vehicle traffic on public transport, imposed a five-day rotation system based on license plates to reduce oil consumption, and urged households to take shorter showers and charge their phones during the day.
“Inflation in utilities, mainly electricity and gas, is likely to rise gradually from the fourth quarter of 2026 (Q4 2026), as major gas and power companies will act as a price cushion for some time,” Jin-wook Kim, Citi’s chief Korea economist, said in a note on Tuesday. For now, he said, he expects the risk of disruption to natural gas imports and domestic gas use to be limited, thanks to the government’s efforts to diversify energy sources.
Coal and nuclear power axis
The government is aiming to switch to coal as an alternative power source, remove the 80% operating cap, and increase the operating rate of nuclear power plants from about 70% to over 80% in order to switch to nuclear energy.
The ongoing energy crisis has exposed the vulnerability of South Korea’s energy mix, said Park Seok-gil, South Korea’s chief economist. JP Morgan“We need to factor in the possibility of supply shocks and further disruptions,” he said.
He also called on the government to expand nuclear power generation and introduce more renewable energy. “We need to be better prepared for all kinds of shocks in the pipeline,” he told CNBC’s “Squawk Box Asia” on Tuesday.
