The ruling party and government will deploy five Korean-flagged vessels to Saudi Arabia's Yanbu port on the Red Sea to secure alternative crude oil supply routes in response to the potential blockade of the Strait of Hormuz. They also decided to reduce the exclusive supply volume that gas stations must purchase from a single refiner from the current 100% to 60%, and to introduce a three-month average pricing system and a time-lag mechanism to curb rapid synthetic resin price hikes by the petrochemical industry.
The Democratic Party of Korea's Special Committee on Economic Response to the Middle East Situation said Wednesday it is reviewing the deployment of Korean-flagged vessels to Saudi Arabia's Yanbu port on the Red Sea as a measure to bypass risks in the Strait of Hormuz and the broader Persian Gulf.
The government had previously advised against navigation through the route following the outbreak of the Middle East crisis, but decided to permit passage as the crude oil supply crisis intensified. Rep. Ahn Do-geol of the Democratic Party said, "The government has decided to dispatch envoys to three oil-producing nations with alternative routes — Saudi Arabia, Oman and Algeria — to secure crude oil volumes." He added, "In particular, we are pursuing a plan to deploy five Korean-flagged vessels to Saudi Arabia's Yanbu port in the Red Sea region."
Saudi Arabia's Yanbu port is one of the country's key oil export hubs, where crude oil is transported via pipeline from eastern oil fields — now in a conflict zone — for export to Europe and Africa. The government plans to also review alternative export routes through the envoy missions, including Oman's Duqm port and a Cape of Good Hope route via Algeria. The ruling party and government also agreed to support a swap arrangement in which strategic petroleum reserves would be supplied on a priority basis when private refiners load alternative volumes from third countries.
These measures were also reported at the Cabinet meeting held the same day. Minister of Trade, Industry and Energy Kim Jeong-gwan said at the Cabinet meeting presided over by President Lee Jae-myung at the Blue House, "With cooperation from the Ministry of Oceans and Fisheries, we will allow crude oil carriers meeting certain requirements to transit the Red Sea, supporting the private sector's efforts to secure additional volumes."
The ruling party and government also decided to abolish the post-settlement system, which has been criticized as an unfair practice in the refining and gas station industry. Under the post-settlement system, refiners first supply gasoline and other products to gas stations and then settle prices roughly one month later based on international benchmark prices. Critics have pointed out that this forces gas stations to purchase products without knowing the exact price they will have to pay.
The exclusive purchasing system, which requires gas stations to buy exclusively from a single refiner, will also be relaxed. Rep. Ahn said, "An agreement has been reached between gas stations and refiners to lower the exclusive purchase volume from the current 100% to 60%, and a voluntary accord will be pursued soon."
To ease the burden on small and medium-sized enterprises in the plastics industry and other sectors, a three-month average pricing method and a time-lag system will also be introduced for synthetic resin prices supplied by the petrochemical industry. The aim is to limit the scale of price increases by petrochemical companies, given that synthetic resin prices — a raw material for plastics — have surged due to the Middle East crisis.
A special committee official said, "Through the Democratic Party's social dialogue mechanism, we are discussing measures to apply a time-lag system for petrochemical product price increases and to secure supply volumes." The official added, "Specifically, we are reviewing a biweekly time-lag price adjustment system and a three-month average pricing method to ensure gradual and predictable price changes." The Democratic Party has launched a social dialogue body with six petrochemical companies — SK Geo Centric, Hanwha Solutions, LG Chem, GS Caltex, Lotte Chemical and S-Oil — and is requesting reductions in supply prices for synthetic resins and other products.
The plastics industry has participated in the social dialogue body to voice difficulties caused by steep price hikes from the petrochemical sector. The plastics industry reportedly told the Euljiro Committee, "Petrochemical companies supplying synthetic resins have used their oligopolistic position to impose a 50% price increase in March alone, and they are signaling further significant supply price increases in April."
An Euljiro Committee official said, "The position of the SME sector is that it is difficult to accept petrochemical companies sharply raising supply prices as if the products were made from $100 crude oil, when they actually produced synthetic resins using naphtha and crude oil imported when prices were around $60, and only raised prices the moment the war began." The official added, "We are requesting that synthetic resin prices be raised gradually with a time lag."