Oil Price Cap’s Unintended Consequences
A gas station operator in his 40s, who wished to remain anonymous, lamented the oil price cap that the government abruptly implemented in mid-last month. Unlike Korea National Oil Corporation (KNOC), some major brand refiners have not properly settled the March introductions, he added. If he could turn back time, he said, he would have followed the quick-witted gas station owners who chose “closed for business while open.”
According to Opinet, KNOC’s oil price information system, 83 gas stations that had been operating normally before the outbreak of the U.S.-Iran war have not disclosed prices for the past two weeks. On March 12, just before the price cap took effect, only 46 gas stations were closed. The operator expressed frustration, saying that if he could return to the past like in a drama, he would have pulled out of the gas station business early and looked for other work.
Market Distortions Emerge
As the oil price cap has been in effect for more than 40 days, there are positive assessments that it has put out immediate fires, such as calming the pace of gasoline and diesel price hikes that had surged daily immediately after the Middle East crisis erupted. However, concerns have also begun to materialize, including prices moving out of sync with international trends and customers increasingly flocking to Alddeul gas stations, which have relatively cheaper introduction prices. Post-settlement between gas stations and refiners, as well as between refiners and the government, remains a smoldering issue.
Experts Call for Orderly Exit
This is why experts are calling for an exit strategy, including an orderly withdrawal of the price cap. Petroleum products subject to the price cap, unlike electricity and gas that were under government control, had a structure in which prices were still determined through market competition. Of course, when unexpected events such as war occur, the government needs to serve as a breakwater to prevent excessive price volatility. The problem is that if such measures are not limited and short-term, they can encourage distortions such as excessive energy consumption.
Long-Term Consequences
For political reasons, the government did not raise electricity rates even once immediately after the Russia-Ukraine war, and later steeply hiked only industrial electricity rates, leading to corporate exits. Meanwhile, households and commercial establishments that had grown accustomed to cheap electricity rates are still ignoring energy conservation measures such as “open-door air conditioning” even in April.
Original Article: Orderly Exit Needed for Oil Price Cap — Sedaily