Energy crisis demands strategy beyond price controls

Amid a surge in global oil prices triggered by tensions in the Middle East, the average retail price of gasoline at Seoul gas stations climbed into the 1,900 won per liter range on March 6 for the first time in four years. Domestic fuel prices have risen even before the full impact of higher international crude prices has been reflected. President Lee Jae-myung warned against what he described as “gasoline price gouging,” and the government has begun inspections. Even so, price instability stemming from the Middle East crisis is likely to persist.

Lee noted that gasoline prices at home vary widely even within a single day. “I have heard that prices differ between morning, afternoon and evening, and that some stations have raised prices by nearly 200 won per liter,” he said, while referring to the possibility of introducing a “maximum price designation system.” Hoarding or collusive price manipulation that exploits an external crisis should be dealt with firmly. However, direct price controls on more than 10,000 gas stations nationwide could create unintended consequences such as market distortions and supply disruptions. Because price controls are an exceptional emergency measure, the government should first activate oil price stabilization policies that calm market anxiety by stabilizing supply and demand.

Iran, which has come under airstrikes from the United States and Israel, has blocked the Strait of Hormuz, a key passage through which more than 20 percent of the world’s crude oil and natural gas flows. It has also expanded its attacks to oil refining and gas production facilities in neighboring countries, as well as oil tankers operating in nearby waters. After a large tanker anchored in the Persian Gulf was struck in an Iranian attack, West Texas Intermediate crude rose to $81 per barrel, its highest level in about a year and a half. Charter rates for oil tankers have reportedly doubled to about 600 million won per day. To prepare for a prolonged crisis, authorities should secure alternative sources of crude oil and natural gas while also preparing supply chain stabilization measures, including support for rising maritime freight and insurance costs.

Despite importing about 70 percent of its crude oil from the Middle East, South Korea ranks among the world’s highest in oil consumption relative to the size of its economy, making it an energy overconsumption country. The government said on March 6 that it will urgently import more than 6 million barrels of crude oil from the United Arab Emirates. Yet that volume covers only two to three days of domestic consumption. To prepare for a prolonged period of high oil prices, authorities must combine supply stabilization with phased demand management measures. Encouraging the use of public transportation instead of private cars, and expanding remote work if conditions worsen, could help reduce energy consumption.

Even the United States, a major oil producer has already seen domestic gasoline prices rise to their highest level since Russia’s invasion of Ukraine in February 2022. Within two to three weeks, the surge in global crude prices and the rise in the dollar-won exchange rate, reflecting a weaker Korean currency, will likely be fully reflected in domestic gasoline prices. If necessary, the government should ease the burden on low-income households through measures such as energy vouchers or fuel tax rebates. The Middle East energy crisis involves many external factors beyond domestic control. Rather than relying solely on warnings and enforcement, the government, households and businesses must work together to navigate the challenge.