Middle East conflict pushes up oil prices, South Korea considers implementing oil price caps for the first time in 30 years

Concerns over rising energy prices triggered by the escalation of Middle East conflicts are prompting the South Korean government to consider implementing a fuel price cap for the first time in nearly 30 years.

According to South Korea’s Yonhap News Agency on Sunday, following U.S.-Israel strikes against Iran, global crude oil prices surged almost immediately, reflecting in domestic fuel prices rather than the usual two-week lag. This has led officials in South Korea to begin reviewing the possibility of imposing a price cap.

South Korea relies heavily on energy imports and is particularly sensitive to external price shocks, which often drive up inflation. This review is based on Article 23 of South Korea’s Petroleum and Alternative Fuels Business Act, which allows the Minister of Industry to set maximum retail prices during periods of sharp price fluctuations that threaten economic stability. However, since South Korea deregulated oil prices in 1997, this provision has effectively been dormant.

President of South Korea Orders Price Cap Plan

Sources say that due to potential side effects, including market distortions and fiscal burdens, the government is carefully weighing this option.

South Korean President Lee Jae-myung instructed officials during a special cabinet meeting on Thursday, which discussed U.S.-Israel strikes against Iran, that if implementing a nationwide price cap proves difficult, they should quickly establish regional and fuel-specific price cap systems.

The next day, Lee also warned refiners against possible collusion to raise gasoline prices.

Domestic Oil Prices in South Korea Surge, Average Gasoline Exceeds $1.27

Following the president’s directive, the South Korean government has formed a cross-departmental task force to crack down on illegal oil distribution, hoarding, and unfair trade practices.

Additionally, the government has decided to procure over 6 million barrels of crude oil from the United Arab Emirates to stabilize energy supplies.

Despite these measures, gasoline prices at domestic stations continue to rise. According to data from Korea National Oil Corporation, as of Saturday evening, the average gasoline price exceeded 1,890.87 KRW per liter ($1.27).

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