Preparing for 'Complex Shock from the Middle East'... President Lee Urgently Convenes 'Emergency Economic Inspection Meeting'

Blue House Convenes Meeting Amid Prolonged Strait of Hormuz Disruptions
Brent Crude at $92, WTI at $90
Gasoline Prices in Seoul Near 2,000 Won per Liter
February Inflation Holds at 2.0%, but Upward Pressure Expected in March
Rising Vol

The "Emergency Economic Response Meeting for Economic and Price Situation Monitoring" on the Middle East situation, chaired by President Lee Jaemyung at the Blue House on March 9, is expected to focus on reviewing measures to counter the negative impact of the US-Israel-Iran war. The meeting aims to prepare for potential adverse effects on domestic gasoline prices, consumer prices, the exchange rate, and financial markets. As the conflict in the Middle East shows signs of prolongation, international oil prices have surged, and the price of gasoline at Seoul gas stations has neared 2,000 won per liter. With the won-dollar exchange rate hovering in the 1,480 won range as of the 6th, market volatility has increased, and the domestic stock market has been showing unstable rebounds after a steep decline.

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The immediate background for this emergency economic meeting is the prolonged disruption of navigation through the Strait of Hormuz. The Strait of Hormuz, which accounts for approximately 20% of global crude oil and liquefied natural gas (LNG) supply, is virtually blocked. In response, the Kuwait Petroleum Corporation (KPC) declared "Force Majeure" on March 7 (local time) due to shipping disruptions caused by the Middle East war, announcing production cuts and reduced output. This signifies that the shock from the Middle East is spreading beyond mere geopolitical risk to become a global real supply chain variable.

The inclusion of the Ministry of Economy and Finance, the Ministry of Trade, Industry and Energy, the Ministry of Climate, Energy and Environment, the Ministry of Strategy and Budget, the Ministry of Agriculture, Food and Rural Affairs, the Fair Trade Commission, and the National Tax Service in the meeting chaired by President Lee is seen as a preemptive strategy to address the complex impact. The meeting is likely to cover a wide range of issues at one table, including energy supply and securing sources, the pace of price pass-through at refineries and gas stations, the potential for price collusion or hoarding, the ripple effect on agricultural, livestock, and processed food prices, and tax support measures.

Previously, the Korea Customs Service announced logistics and tax support measures such as priority customs clearance for returning cargo, import duty exemption for re-imports, special exemptions for export declaration corrections or withdrawals, and exclusion of additional transport costs from taxable value. A Blue House official explained, "The purpose is to bring all relevant ministries together to review the current response, set priorities, and enable rapid decision-making among the concerned agencies."

International oil prices are already reflecting the impact of the Middle East crisis in earnest. As of March 6, Brent crude closed at $92.69 per barrel, while West Texas Intermediate (WTI) closed at $90.90. Brent crude reached its highest intraday level since September 2023, and WTI jumped more than 12% in one day. This suggests that international oil prices have begun to factor in the prolonged situation in the Middle East.

The government is operating a 24-hour response system to mitigate the economic shock from the Middle East crisis. On March 6, Kang Hoonshik, Blue House Chief of Staff, held an unscheduled briefing and announced that, through consultations with the United Arab Emirates (UAE), Korea would urgently import 6 million barrels of crude oil. Two Korean-flagged oil tankers will dock at alternative UAE ports not requiring passage through the Strait of Hormuz to transport 4 million barrels of oil stored at the port. Korea also concluded discussions to allow the use of an additional 2 million barrels from joint reserves with the UAE if necessary.

However, the immediate problem is not the depletion of reserves but the 'price' of gasoline and diesel that consumers feel. According to Opinet statistics as of March 8, the nationwide average gasoline price at gas stations rose to 1,895.65 won per liter, and diesel to 1,918.01 won. In Seoul, gasoline was 1,945.78 won and diesel 1,966.38 won per liter, even higher. Although the recent daily price increases have eased somewhat, the typical 2-3 week lag before international oil price changes are reflected in domestic gas station prices means further increases cannot be ruled out. This is why, following President Lee's instructions, the government considered imposing a price ceiling.

The impact of rising oil prices on consumer prices must also be closely monitored. In February, the consumer price index rose by 2.0% year-on-year, the core inflation rate excluding food and energy increased by 2.3%, and the living cost index was up by 1.8%. While the February figures do not suggest prices have moved significantly outside the management range, the recent surge in oil prices has not been fully reflected, warranting caution. After March, increased fuel costs could spread to logistics, processed foods, dining out, and livestock product prices.

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Financial market volatility is also under scrutiny. On March 4, the KOSPI fell by 12.06% to close at 5,093.54 due to the shock from the Middle East war, marking the largest single-day drop in history. The won-dollar exchange rate surged to 1,505.8 won during trading, the lowest level in 17 years. Although the KOSPI recovered to close at 5,584.87 on March 6 and the weekly closing exchange rate was 1,476.4 won on the same day, volatility remains high. Concerns persist that if international oil prices surge again or the conflict worsens, the won could weaken further and foreign investors may resume heavy selling.

Going forward, the government's top priority is expected to be taking preemptive action to contain the escalating effects of the Middle East war. The government is likely to intensify its response by alleviating short-term supply instability with reserves and emergency imports from the UAE, slowing the pace at which soaring oil prices are passed on to consumer prices, and managing exchange rate and stock market volatility.

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