Fuel prices are displayed at a gas station in Seoul on the 21st. Yonhap News
The South Korean government has decided to freeze the maximum prices of petroleum products including gasoline and diesel once again, while extending the notice period from the current two weeks to four weeks. The move reflects the prolonged stalemate in the Middle East conflict, which remains unresolved as international oil prices continue to hover above $100 per barrel. The International Monetary Fund (IMF) criticized that policies such as price ceilings should be implemented only in exceptional circumstances.
The Ministry of Trade, Industry and Energy announced the “6th Petroleum Product Maximum Price” notice on the 21st containing these measures. The key change is that while maximum prices for each product remain frozen, the applicable period has been extended from two weeks to four weeks. Accordingly, the maximum prices per liter — 1,934 won for gasoline, 1,923 won for diesel, and 1,530 won for kerosene — will apply through midnight on June 19. The prices set as of midnight on March 27 will be maintained for 12 consecutive weeks.
The government extended the maximum price renewal cycle because the Middle East situation has shown little change. “There were concerns that issuing notices every two weeks is not effective when there are no significant changes,” a ministry official said. “However, if unusual situations arise, we will adjust the system at any time regardless of the cycle.” In fact, the price of Brent crude, which serves as the basis for calculating the maximum price, has moved sideways at $101 per barrel on the 6th, $105.63 on the 13th, and $105.02 on the 20th.
As such, it appears that completely ending the maximum price system will take considerable time. “A Korean-flagged Very Large Crude Carrier (VLCC) that had been stuck in the Strait of Hormuz recently got out, but the situation can only be considered stable when that ship can also re-enter,” the ministry official explained. “The maximum price system can only be terminated when predictability is guaranteed in the international oil market.”
With the maximum price system continuing for three months, concerns have been raised that the costs to be settled with refiners could increase significantly. Oil prices remain high, and the won-dollar exchange rate has exceeded 1,500 won, placing considerable cost burdens on refiners. The industry estimates that losses of several hundred billion won are steadily accumulating each week. The government has secured 4.2 trillion won through a supplementary budget to compensate for losses under the maximum price system.
The IMF also pointed out that policy measures such as price ceilings should be avoided as much as possible. Pierre-Olivier Gourinchas, the IMF’s chief economist, wrote on the IMF website that “policies such as energy tax cuts, price ceilings, and subsidies that many countries have pursued as response measures since the outbreak of the Middle East war worsen the market price-setting function and generally benefit higher-income groups more.” He added, “Once implemented, they are difficult to terminate, and if compensation for the refining industry is insufficient, supply shortages may also arise.”
Meanwhile, the Ministry of Economy and Finance held the “Task Force Meeting of Relevant Ministers on Special Management of People’s Livelihood Prices” at the Seoul Government Complex the same day and decided to extend the fuel tax cut, which was scheduled to end at the end of this month, by two months through the end of July. The move is interpreted as taking into account that the maximum price system will continue through June. Since the fuel tax is included in the petroleum product maximum prices set by the government, the flexible fuel tax rate cannot be changed while the system is in effect. The current fuel tax cut margins are 15% for gasoline and 25% for diesel. Accordingly, fuel taxes of 698 won per liter for gasoline and 436 won per liter for diesel are applied.