Market Update: Gov’t to implement fuel price cap on Friday, limit diesel, gasoline exports – Full Analysis

 

The Korean government will implement an initial cap on fuel supply prices starting Friday and limit exports of gasoline and diesel as the country, heavily dependent on oil imports through the Strait of Hormuz, scrambles to rein in soaring energy prices.

 

The ceiling for gasoline will be set at 1,724 won per liter ($4.42 per gallon), while that for diesel will be at 1,713 won and kerosene at 1,320 won for the upcoming two weeks, according to the Ministry of Trade, Industry and Resource.

 


 

The cap will be calculated every two weeks by multiplying the weekly average base price by an adjustment rate reflecting changes in international oil product prices, and then adding applicable taxes.

 

But given that the cap will be applied to the supply price — the average price at which refiners sell fuel to gas stations and distributors — rather than retail pump prices, it remains unclear how effective the measure will be.

 

“We excluded retail prices because the prices of gas stations vary widely not only by region but also among stations within the same area due to differences in operating models, rent and other costs, making uniform regulation difficult,” said Yang Ghi-wuk, director-general for the Trade, Industry and Resource Security division at the ministry.

 

“Instead of imposing a blanket cap on retail prices, the government will apply the measure to supply prices and monitor gas stations through other oversight measures,” he said, adding that the ministry is mulling publicly disclosing gas stations that post the largest margin increases from a year earlier.

 

 

Yang went on to note that the government will compensate refiners for losses generated by the cap.

 

Some experts warned that the measure may not be sufficient for consumers to feel a meaningful impact.

 

“The policy could end up simply altering gas station margins. Ultimately, the goal should be to stabilize market prices, but this would effectively leave the outcome up to gas stations’ discretion,” said Lee Yoon-soo, professor at Seoul National University Graduate School of International Studies.

 

Fuel prices are displayed at a gas station near Pyeongtaek Port in Pyeongtaek, Gyeonggi,on March 12. [NEWS1]

 

“There is a strong possibility that the policy could create more negative effects than positive ones. If the government compensates refiners for losses using tax revenue, it could become a policy in which taxpayers end up footing the bill without necessarily benefiting from it,” Lee said.

 

Even if the government does fund the policy, it could increase inflationary pressures.

 

“Rising oil prices affect a wide range of upstream and downstream industries, from refiners and airlines to logistics and retail. When logistics costs increase, concerns about broader inflation also grow,” said Kim Sang-bong, professor of economics at Hansung University.

 

“But if fiscal measures such as subsidies or fuel tax support are implemented in such a situation, they could further drive up inflation,” Kim said.

 

Another important pillar of the measure is to restrict domestic oil refiners from excessively increasing exports to take advantage of the price differences between domestic and international markets for products subject to the price cap.

 

The ministry will limit their exports to 100 percent of the volume exported during the same period in 2025.

 

Korea depends heavily upon the Middle East for roughly 70 percent of its crude oil imports, and nearly 99 percent of the region’s shipments bound for Korea pass through the choked-off Strait of Hormuz. 

 

Korea currently holds oil reserves equivalent to about seven months of supply. However, that cushion has also been depleting quickly as the country decided to release a record amount of its oil reserves in line with an agreement among International Energy Agency (IEA) members to stabilize global oil markets rattled by the Iran war.

 

Under the agreement, Korea plans to unleash 22.46 million barrels of oil from its reserves, the Industry Ministry said late Wednesday, following the IEA’s decision to make 400 million barrels of oil from their reserves available to the market.

 

The release marks the largest-ever drawdown for both Korea and the IEA.

 

To prepare for a possible prolonged situation, the government is considering additional measures such as exercising preferential purchasing rights for joint reserves with oil-producing countries, which could secure some 20 million barrels of crude stock.

 

On the consumer side, the Ministry of Economy and Finance is mulling lowering fuel taxes.

 

The government also plans to seek alternative sources of energy supply beyond those shipped through the Strait of Hormuz and secure overseas production by the state-run Korea National Oil Corp. for domestic use. 

BY PARK EUN-JEE, JIN MIN-JI [[email protected]]