The Korean government will implement a petroleum price ceiling system within this week to counter surging international oil prices triggered by the Middle East crisis. The government is also preparing additional measures including expanded fuel tax cuts and direct consumer subsidies, with plans to pursue a supplementary budget if necessary.
President Lee Jae-myung held an "Emergency Economic Review Meeting on the Middle East Situation" at the Blue House on the 9th. "The government must prepare preemptive countermeasures with extraordinary resolve, keeping even the worst-case scenario in mind," he said. "Extraordinary measures are needed given the severity of energy supply and household instability."
At the meeting, Deputy Prime Minister and Finance Minister Koo Yoon-cheol reported on "Real Economy Impact Assessment and Cross-Ministry Response Plans," while Industry Minister Kim Jung-kwan presented "Oil and Gas Supply and Price Stabilization Measures." Financial Services Commission Chairman Lee Eok-won reported on "Financial Market Assessment and Response Plans," followed by in-depth discussions among participants.
Price Ceiling to Take Effect This Week
The petroleum price ceiling system, previously ordered by President Lee, will be implemented within this week. "The government is particularly focused on the asymmetry where refiners and gas stations raise prices quickly but lower them slowly," said Kim Yong-beom, Blue House Policy Chief. "We discussed specific implementation plans for the price ceiling system to prevent abnormal pricing of petroleum products and ensure price predictability."
"The Ministry of Industry will swiftly proceed with related procedures, including establishing official notices, so the price ceiling can take effect within this week," Kim said. "Detailed contents will be announced separately by the Ministry."
The price ceiling system allows the government to set maximum retail prices for petroleum products over a designated period to curb price spikes. Regarding pricing criteria, Kim said, "We are designing this on a two-week cycle. The initial ceiling price will be lower than what consumers currently face at the market."
"Serious Consideration of Supplementary Budget"
The government also signaled the possibility of a supplementary budget. Analysis suggests additional funding has become unavoidable given the implementation of measures like the price ceiling. While President Lee mentioned earlier this year that "if we do a supplementary budget" when discussing support for the arts sector, this marks the first time the Blue House has strongly indicated supplementary budget possibilities in an official briefing.
"Unexpected funding needs have suddenly emerged," Kim said. "Minimizing economic damage from this shock is the top priority, and we are now seriously considering additional fiscal spending."
"Economic projections for this year, including oil prices, looked favorable, but now things have changed," he continued. "Events we have never experienced have already occurred. If the situation is not resolved early, we may need to revise our economic outlook entirely, so we must have serious discussions about a supplementary budget."
Kim explained that "the required funding has increased substantially over the past ten days—to the point where implementing the price ceiling within existing budget constraints would be difficult."
The scope of required funding could expand across all fronts. While Kim added the caveat "not immediately," there are also calls for additional resources for the 100 trillion won-plus market stabilization program established for financial market stability. Fiscal burdens could also grow through responses aimed at stabilizing energy supply and minimizing consumer damage. The government is reviewing expanded fuel tax cuts alongside direct support measures for fuel consumers.
Priority Purchase Rights in Play; Full Efforts to Secure Supply Lines
The government plans to utilize "priority purchase rights" for crude oil in preparation for a prolonged crisis. "We can also acquire approximately 20 million barrels jointly stockpiled with oil-producing nations by exercising our priority purchase rights," Kim said. "We will redirect Korea National Oil Corporation's overseas production to domestic use and make all-out efforts to secure alternative supply routes that bypass the Strait of Hormuz."
Regarding gas supply, Kim noted that "Middle Eastern sources account for about 14% of this year's planned imports." He added, "While there may be disruptions to approximately 5 million tons of Qatari supply, Korea Gas Corporation and others can secure alternative volumes, so the likelihood of supply disruptions is not high."
Assuming a prolonged situation, Kim said "we must also consider export controls on refiners," prioritizing supply stability above all else.
The government is also accelerating efforts to secure alternative supply routes bypassing the Strait of Hormuz. Government and industry sources cite the United States and Australia as possibilities. President Lee also urged officials to "quickly identify alternative supply routes that do not pass through the Strait of Hormuz."