Gasoline Tops 1,710 Won as Oil Surge Threatens Korean GDP

Average gasoline prices nationwide surpassed 1,720 won per liter for the first time in two months as tensions between the U.S., Israel, and Iran show signs of prolonging. Concerns are mounting that sustained international oil prices above $82 per barrel could cut South Korea's economic growth rate by 0.45 percentage points.

Citi economist Kim Jin-wook wrote in a report on the 3rd that if Brent crude prices remain at the $82 level, South Korea's GDP growth forecasts for this year and next would fall by 0.45 and 0.24 percentage points, respectively. Consumer price inflation is projected to rise by 0.6 percentage points this year and 0.12 percentage points next year.

Citi researchers had previously forecast Brent crude prices at $62 per barrel for the second through fourth quarters of this year. Markets had initially expected limited oil price gains given scheduled U.S.-Iran nuclear talks this week, but the situation changed dramatically after the U.S. and Israel launched large-scale military operations against Iran. On the 2nd, the first trading day after military operations began, Brent crude futures surged as much as 13% intraday to $82.37 per barrel—the highest level in about a year since January last year.

South Korea faces the largest economic impact from rising oil prices among major economies, the analysis showed. According to Citi, South Korea's estimated GDP growth decline per $10 increase in oil prices ranked second only to Taiwan for this year. The cumulative decline through next year exceeded Taiwan's.

"Because the Korean economy is highly dependent on crude oil imports and foreign trade, the cumulative negative impact of oil price increases on GDP growth and the current account balance is the most severe among major countries," Kim said.

Domestic fuel prices are also climbing as international oil prices soar. According to the Korea National Oil Corporation's Opinet price information system, the national average price of regular gasoline stood at 1,723.07 won per liter as of 3 p.m. that day, up 21 won from the previous day. Domestic average prices, which had remained below 1,700 won since mid-January, crossed 1,700 won on the 2nd and breached 1,720 won for the first time in about two months since January 6th.

By region, Seoul was the most expensive at 1,788 won per liter, followed by Gangwon at 1,734 won, Incheon at 1,732 won, South Jeolla at 1,726 won, and Gyeonggi at 1,724 won. Some Seoul gas stations saw prices climb as high as 2,780 won.

"International oil prices are typically reflected at domestic gas stations with a lag of about one to two weeks, so price increases are inevitable for the time being," an energy industry official said.