In response to escalating energy prices driven by ongoing tensions in the Middle East, the South Korean government is considering implementing an oil price cap, a measure not utilized in nearly three decades, according to sources familiar with the matter.
This potential intervention follows a rapid increase in domestic fuel costs mirroring global crude oil price hikes, a reaction seemingly faster than the usual two-week adjustment period after recent US and Israeli strikes in Iran and subsequent retaliatory actions by Tehran.
As a nation heavily reliant on energy imports, South Korea is particularly susceptible to external price shocks, which can significantly contribute to inflation.
The potential price cap is being evaluated under Article 23 of the Petroleum and Alternative Fuel Business Act, granting the Minister of Trade, Industry and Energy the authority to set maximum fuel prices during periods of significant price volatility that threaten economic stability.
This provision, however, has remained largely unused since the liberalization of oil prices in 1997.
Sources indicate the government is carefully considering the implications of such a move, including potential market distortions and financial burdens.
During an emergency Cabinet meeting held on Thursday to address the US-Israeli strikes in Iran, President Lee Jae Myung instructed officials to promptly develop a regional and fuel-specific price cap system should a nationwide cap prove unfeasible. On Friday, Lee also cautioned oil refining companies against any potential collusion in raising gasoline prices.
Following the President’s direction, the government has established an interagency inspection team to combat illegal oil distribution, hoarding, and unfair trading practices.
Further bolstering energy security, the government has also committed to securing over 6 million barrels of crude oil from the United Arab Emirates to stabilize supplies.
Despite these efforts, gasoline prices at local gas stations continue to climb, underscoring the urgency of the situation.
