South Korea Imposes Fuel Price Cap to Shield Economy from Energy Shock
South Korean President Lee Jae Myung announced on Monday that authorities would cap domestic fuel prices for the first time in nearly 30 years to contain a spike in prices following the conflict in the Middle East. The move aims to shield the economy from the energy shock caused by the global crude price surge.
The current crisis is a significant burden on South Korea‘s economy, which is highly dependent on global trade and energy imports from the Middle East. Lee emphasized that the government would “swiftly introduce and boldly implement” a maximum price system on petroleum products that have recently seen excessive price increases.
Alternative Energy Sources Beyond Strait of Hormuz
The government will also look for sources of energy beyond supplies shipped via the Strait of Hormuz, which has been affected by the blockade. According to Presidential policy adviser Kim Yong-beom, South Korea could secure 20 million barrels of crude stock it jointly stores with oil-producing countries if it exercises its right to buy. Additionally, the state-run Korea National Oil Corp can divert overseas production for domestic use.
The amount of crude oil shipped to South Korea affected by the Strait of Hormuz blockade is around 1.7 million barrels per day. Kim noted that 14% of natural gas due to be imported this year is from the Middle East, with about 5 million tons of Qatari gas imports expected to be disrupted. Domestic supplies are unlikely to be hit, as Korea Gas Corp and other players can import from alternative sources.
Market Stabilization Programme Expanded
President Lee also emphasized that a 100 trillion won market stabilization programme should be expanded if needed. He called on the government and the central bank to prepare additional measures to respond to the volatility of the financial and foreign exchange markets. The benchmark KOSPI closed 6% lower on Monday, after falling as much as 9% to trigger circuit breakers for a second time this month.
The won weakened nearly 1% to trade near a psychological barrier of 1,500 per dollar, while the benchmark bond yield hit more than two-year highs. The market slump has raised concerns about the potential impact on low- and high-income consumers in the United States.
Original Article: South Korea to impose fuel price cap to shield economy from energy shock | Reuters — Reuters