Soaring Prices Amid Oil Price Surge... Government Also Considering 'Crude Oil Tariff' Reduction

No Crude Oil Tariffs Imposed Among Oil-Producing Countries
Eliminating Crude Oil Tariffs Could Lower Gasoline Prices by 2.7% and Consumer Prices by 0.244%p

On the 3rd, as international oil prices continue at their highest level in over seven years, a gas station in Seoul is selling gasoline at 2,095 won per liter, with domestic average gasoline prices expected to exceed 1,800 won per liter. Photo by Jinhyung Kang aymsdream@

[Asia Economy Sejong=Reporter Kwon Haeyoung] As domestic oil prices surged sharply due to the rapid rise in Dubai crude oil prices, which South Korea mainly imports, the government has begun considering not only extending the fuel tax cut but also lowering the crude oil tariff. This is because it is analyzed that the extension of the fuel tax cut alone, which is currently reflected in oil prices, is unlikely to achieve additional reductions and price stabilization effects. It is expected that lowering the crude oil tariff would reduce oil prices by 2.7% and consumer prices by 0.244 percentage points.

According to related ministries on the 9th, the Ministry of Trade, Industry and Energy plans to soon propose a crude oil tariff reduction measure to the Ministry of Economy and Finance under the emergency oil supply response plan and discuss this issue. Park Ki-young, the 2nd Vice Minister of the Ministry of Trade, Industry and Energy, stated, "If the international oil price continues to rise, we will continuously consult with the Ministry of Economy and Finance and other related ministries on measures to alleviate the national economic burden, such as extending the fuel tax cut period scheduled to be implemented until April."

The current import tariff imposed on crude oil is 3%. The government applies a temporary reduced tariff called 'quota tariff' of 0.5% and 2% respectively on some crude oil volumes used for naphtha and liquefied petroleum gas (LPG) production as exceptions. Excluding these volumes, a 3% tariff is imposed on a total of 714.5 million barrels of crude oil based on last year's annual import volume of 960 million barrels. Based on a won-dollar exchange rate of about 1,200 won and Dubai crude oil at $90 per barrel, 2.31 trillion won is paid as crude oil tariff, and if it rises to $100, 2.57 trillion won is paid as crude oil tariff. This structure inevitably reflects directly in oil prices.

According to a report by the Korean Association of Public Finance, if the crude oil tariff is reduced to 0%, oil prices are expected to decrease by up to 2.7%, and consumer prices by 0.244 percentage points. Previously, when the price of urea solution surged last year, the government temporarily lowered tariffs on the entire import volume from 5-6.5% to 0%.

An official from the refining industry said, "Since crude oil tariffs are borne by importers, they are directly passed on to the prices consumers pay, and if oil prices rise, consumer burdens inevitably increase," adding, "If the government lowers crude oil tariffs, the benefits ultimately go to consumers and have the effect of suppressing price increases."

A Ministry of Economy and Finance official said in this regard, "At this stage, we are not considering lowering the crude oil quota tariff other than extending the fuel tax cut," but added, "If proposals come from other ministries such as the Ministry of Trade, Industry and Energy, we will discuss them." However, the official explained, "(Lowering crude oil tariffs) has less effect on reducing oil prices compared to extending the fuel tax cut, so careful consideration is needed."

However, as consumer prices have recorded a 3% increase rate for four consecutive months for the first time in 10 years (from October last year to January this year), and oil prices push up finished product and service prices, fueling rising inflation, voices are growing that a policy combination of extending the fuel tax cut along with lowering crude oil tariffs is necessary. Previously, when the price of urea solution surged last year, the government temporarily lowered tariffs on the entire import volume from 5-6.5% to 0%.

There are also many opinions that crude oil tariffs, which non-oil-producing countries worldwide do not introduce, should be completely abolished. Among the OECD member countries, except for South Korea, only three countries? the United States, Australia, and Mexico?have introduced crude oil tariffs, with rates ranging from 0.1% to 0.4%.

This content was produced with the assistance of AI translation services.