"Concerns Over Complex Crisis From Middle East Impacting Prices, Fuel, Stock Market, and Exchange Rate... President Lee Convenes Emergency Meeting (Comprehensive)"

The "Emergency Economic Inspection Meeting for Economic and Price Conditions Related to the Middle East Situation," presided over by President Lee Jaemyung at the Blue House on March 9, is expected to focus on thoroughly examining countermeasures against the negative impact of the US-Israel-Iran war. The meeting will address potential effects on domestic gasoline prices at gas stations, consumer prices, the exchange rate, and the financial markets. As the conflict in the Middle East shows signs of prolongation, international oil prices have surged, with gasoline prices at gas stations in Seoul approaching 2,000 won per liter. The won-dollar exchange rate, which stood in the 1,480 won range as of March 6, has become increasingly volatile. Meanwhile, the domestic stock market has experienced a sharp decline followed by a shaky rebound.

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The immediate background for the emergency economic inspection meeting is the prolonged disruption of passage through the Strait of Hormuz. The strait, responsible for about 20% of the world's crude oil and liquefied natural gas (LNG) supply, is now effectively blocked. In response, Kuwait Petroleum Corporation (KPC) declared force majeure on March 7 (local time) due to the suspension of shipments caused by the Middle East war and decided to reduce oil production along with cutting output. This indicates that the shock originating from the Middle East is escalating from a mere geopolitical risk to a global real-world supply chain variable.

The inclusion of the Ministry of Strategy and Finance, Ministry of Trade, Industry and Energy, Ministry of Climate, Energy and Environment, Ministry of Planning and Budget, Ministry of Agriculture, Food and Rural Affairs, Fair Trade Commission, and the National Tax Service in the meeting presided over by President Lee is seen as a move to address complex shocks. It is highly likely that topics such as stabilizing energy supply and securing import sources, the speed at which price increases are passed on to refiners and gas stations, the possibility of collusion or hoarding, the impact on prices of agricultural, livestock, and processed food products, and tax support will all be discussed at the same table.

At this meeting, Deputy Prime Minister and Minister of Strategy and Finance Koo Yooncheol will report on "Assessing the Impact on the Real Economy and the Government-Wide Response Direction," while Minister of Trade, Industry and Energy Kim Jeonggwan will report on "Oil and Gas Supply and Price Stabilization Measures." Subsequently, Financial Services Commission Chairman Lee Eogwon will share updates on "Financial Market Conditions and Response Measures." Previously, the Korea Customs Service introduced logistics and tax support measures such as priority customs clearance for returning cargo, duty-free re-imports, immunity provisions for corrections or withdrawals of export declarations, and the exclusion of additional transport costs from taxable value. A Blue House official explained, "This meeting brings together all relevant ministries to assess the current response and set priorities for swift decision-making among the agencies."

International oil prices have already begun to reflect the shock from the Middle East crisis in earnest. As of March 6, Brent crude closed at $92.69 per barrel, and West Texas Intermediate (WTI) at $90.90 per barrel. During the same session, Brent crude climbed to its highest level since September 2023, and WTI jumped by more than 12% in a single day. This suggests that international oil prices have started to factor in the potential for a prolonged Middle East crisis.

The government is operating a 24-hour response system to minimize the economic impact of the Middle East crisis. Kang Hoonshik, Chief Presidential Secretary, held an unscheduled briefing on March 6 to announce that, following consultations with the United Arab Emirates (UAE), South Korea will urgently import 6 million barrels of crude oil. Two South Korean-flagged oil tankers will dock at alternative UAE ports that do not require passage through the Strait of Hormuz, and 4 million barrels of oil stored at these ports will be shipped to Korea. An agreement was also reached to utilize an additional 2 million barrels from the UAE joint stockpile if necessary.

However, the immediate concern is not the depletion of strategic reserves but the "prices" of gasoline and diesel that consumers feel. According to Opinet data as of March 8, the nationwide average gasoline price at gas stations has risen to 1,895.65 won per liter and diesel to 1,918.01 won per liter. In Seoul, gasoline is at 1,945.78 won and diesel at 1,966.38 won per liter, both higher than the national average. While the pace of increase, which had recently surged by several tens of won per day, has slowed somewhat, there is still a possibility of further hikes, as international oil price fluctuations are typically reflected in domestic gas station prices with a two to three-week lag. It is for this reason that, under President Lee's instructions, the government has considered implementing a maximum price cap.

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The impact of rising oil prices on consumer prices must also be closely monitored. In February, consumer prices increased by 2.0% compared to the same month last year, while core inflation excluding food and energy rose by 2.3%, and living expenses by 1.8%. Although the February indicators suggest that prices have not significantly deviated from the management range, the recent surge in oil prices is not fully reflected in these figures, so caution is warranted. After March, higher oil costs could spread to increased costs in logistics, processed foods, dining out, and livestock products.

Volatility in the financial markets is also a major concern. On March 4, the KOSPI plummeted by 12.06% to close at 5,093.54 due to the shock of the Middle East conflict, marking the largest drop ever. The won-dollar exchange rate soared to 1,505.8 won during the day, reaching its lowest level in 17 years. Although the KOSPI closed at 5,584.87 in a modest rebound on March 6, and the exchange rate recorded 1,476.4 won at the weekly closing, volatility remains high. Concerns persist that, if international oil prices surge again or the conflict worsens, the won could weaken further and foreign selling pressure could intensify once more.

Going forward, the government's top priority is expected to be proactively preventing the escalating aftermath of the Middle East conflict. While using strategic reserves and the emergency imports from the UAE to resolve short-term supply instability, the government is also likely to intensify efforts to slow the transmission of rising oil prices to consumer prices and to manage volatility in the exchange rate and stock market.

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