Oil Shock Buffers Need Strengthening Beyond Emergency Measures

In 1974, the International Energy Agency (IEA) was launched under the leadership of 16 countries including the United States, United Kingdom, and Japan. The purpose was to jointly respond to the first oil shock triggered by the Fourth Arab-Israeli War. The core crisis preparedness measures of the IEA include mandatory maintenance of 90 days of emergency oil reserves, constant readiness of emergency plans to curb oil demand, fuel switching, and allocation and emergency sharing of available oil supplies. These constitute a quadruple buffer system against oil shocks.

South Korea qualified for IEA membership in 2002 by meeting the requirement of holding 90 days of emergency oil reserves. The country subsequently increased its stockpile, reaching 301 days' worth by December 2015. However, reserves fell below 200 days during the Moon Jae-in administration, plunging to 169 days at one point. It was only after the change of government that reserves exceeded 200 days again. The current administration has been maintaining stable reserves at around 210 days. Nevertheless, given the country's high dependence on foreign energy and security risks in Northeast Asia, there remains a need to stockpile more than 300 days' worth, similar to the Netherlands (413 days as of November last year) and Denmark (345 days).

Amid the recent shock from the Iran war, the 32 IEA member countries agreed on the 11th to release a record 415 million barrels of strategic petroleum reserves. Of this, the United States will release 172 million barrels. Japan will also supply 80 million barrels. This is interpreted as a strategic move to actively coordinate with the U.S. government, avoid tariff pressure, and secure leadership in regional security. South Korea has decided to release 22.46 million barrels from its reserves. Additionally, the government will implement a "maximum oil price system" to control market fuel prices. However, other oil shock buffers—demand suppression and fuel switching policies—have not yet been deployed.

Previously, during the Roh Moo-hyun administration, in response to the Iraq-induced oil price turmoil of 2003-2004, the government went beyond releasing oil reserves to promote economic innovation through tax incentives for industry to shift toward high energy efficiency structures and nationwide consumption-saving measures. China, though not an IEA member, has also prepared for oil crises by expanding electric vehicle adoption, increasing nuclear power plants and renewable energy for fuel switching, and significantly boosting its oil reserves. It is time for our government to present fundamental policies to improve the energy supply-demand structure that go beyond emergency oil price remedies.