"Brazen" and "Shameless"... Profiteering on Fuel Prices Fuels Drastic Government Action [Why&Next]

Gasoline Prices Surge Immediately After Oil Price Hike
Government Criticizes "Brazen Profiteering"
Comprehensive Investigation Launched into Refinery Industry

"Unfair profiteering," "anti-social misconduct," "brazen," "shameless."

These are the words used by President Lee Jaemyung, Deputy Prime Minister and Minister of Strategy and Finance Koo Yoonchul, and Minister of Trade, Industry and Energy Kim Jungkwan in response to the sharp rise in fuel prices following the Middle East crisis. Generally, when international oil prices rise, it takes at least two weeks for this to be reflected in both refinery supply prices and gas station retail prices. However, even before the ships carrying crude oil purchased at the previous lower prices arrived in Korea, domestic fuel prices surged immediately after the spike in international oil prices. Effectively, the 'two-week lag' has disappeared.

President Lee Jae-myung is entering the emergency economic inspection meeting on the Middle East situation held at the Blue House on the 9th. Photo by Yonhap News Agency

"Fuel Prices Soared Immediately After Oil Price Hike"... Controversy Over Disappearance of 'Two-Week Lag'

The reason the government is reacting so sensitively is that the issue of rising fuel prices is not just about energy costs; it is seen as the starting point for an overall increase in the cost of living. In the Consumer Price Index, the weight for petroleum products such as gasoline and diesel is 46.6, which is even higher than that of agricultural products. Ultimately, the increase in fuel prices is likely to lead to higher transportation and production costs, spreading to overall consumer prices for goods and dining out.

The prices of processed foods such as flour, sugar, cooking oil, and instant noodles are closely linked to oil prices, as packaging materials, chemical ingredients, and logistics costs are all affected by petroleum prices. In fact, experts have expressed concern that rising oil prices could create a chain reaction leading to increased prices of raw materials like flour and sugar, and consequently to higher processed food prices. The government also believes that this could trigger a cascading effect of 'surging oil prices → rising raw material costs → increases in food and everyday consumer prices.'

Experts point out that the extent of future price increases will depend on whether the war becomes prolonged. Kim Jeongsik, Professor of Economics at Yonsei University, stated, "If international oil prices rise to around $130 per barrel, the consumer price inflation rate could reach 3 to 4 percent. Typically, when the inflation rate exceeds 3 percent, it is considered a significant burden." Kim Sangbong, Professor of Economics at Hansung University, also predicted, "If the war drags on, the inflation rate could stabilize at around 3 percent."

There are also warnings that if geopolitical risks are prolonged, the impact on the overall Korean economy could be even greater. Kim Daejung, Professor of Business Administration at Sejong University, pointed out, "Given Korea's economic structure, which is heavily dependent on energy imports and trade, a surge in Middle Eastern energy prices could go beyond being just an external variable." He added, "Rising oil prices can impose a chain burden on overall prices and industries through higher logistics and production costs."

Deputy Prime Minister and Minister of Strategy and Finance Koo Yoon-chul is inspecting the site of a gas station in Yuseong District, Daejeon, on the 6th. Photo by Yonhap News

Comprehensive Inspections of Refineries and Gas Stations... Considering the 'Maximum Price System'

Another reason for the government's stronger response is its fuel tax reduction policy. To ease the fuel price burden, the government began cutting the fuel tax in November 2021 and has extended it every two months since then. Including the latest extension, this is the 20th renewal, meaning taxes have effectively been lowered for over four years. Despite this prolonged tax reduction, if market prices rise quickly, the government fears the policy's effectiveness could be undermined. A government official said, "We have reduced taxes to ease the burden on consumers, but if prices rise excessively fast, the public may not feel the benefits of the policy."

The government has launched comprehensive inspections of the entire price formation process at refineries and gas stations. This is to check for any market-disrupting activities, such as collusion or hoarding, in response to rising international oil prices. The government plans to take action under the Fair Trade Act and relevant price regulations if any illegal activities are detected.

On the 9th, Minister Kim stated at the National Assembly's Trade, Industry, Energy, SMEs and Startups Committee plenary session, "Through joint inspections and special crackdowns by all relevant ministries, we will strictly deal with any acts that undermine market order, such as distribution of fake oil, short measurements, or unfair trade, based on a zero-tolerance policy." On the same day, the Fair Trade Commission also sent investigators to the refining industry to begin on-site inspections. The government is also seriously considering implementing a 'maximum price system,' which would set a ceiling on gas station retail prices, as a potential response if necessary.

Kim Yongbeom, policy chief, and Kim Jungkwan, Minister of Trade, Industry and Energy, are conversing at the emergency economic inspection meeting on the Middle East situation chaired by President Lee Jae-myung at the Blue House on the 9th. Photo by Yonhap News Agency

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