'Middle East Shock' Presidential Office: "Petroleum Product Price Ceiling to Be Implemented This Week"... Hints at Supplementary Budget (Comprehensive)

In response to a sharp increase in domestic oil prices amid instability in the Middle East, the government has decided to implement a price ceiling system for petroleum products within this week. The government also left open the possibility of an extra budget, citing that additional resources may be needed if the Middle East crisis is prolonged.

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Kim Yongbeom, policy chief at the Blue House, stated at a briefing on March 9 that President Lee Jaemyung presided over an "Emergency Economic Review Meeting on the Middle East Situation" from 11:00 a.m. for about one hour and 30 minutes, focusing on measures to stabilize the supply and prices of oil and gas, as well as responses for the financial markets. The meeting was attended by the Deputy Prime Minister for Economic Affairs and heads and deputy heads from 11 ministries and the Blue House. Deputy Prime Minister and Minister of Economy and Finance Koo Yooncheol reported on the real economy impact and pan-ministerial response plans; Minister of Trade, Industry and Energy Kim Jeonggwan reported on oil and gas supply and price stabilization plans; and Chairman of the Financial Services Commission Lee Eogwon reported on the financial market situation and response measures.

The government has decided to implement the price ceiling system, which will restrict abnormally high petroleum product prices, starting this week. Policy chief Kim said, "We discussed concrete implementation plans for the price ceiling system to prevent abnormal price-setting for petroleum products and to secure price predictability," adding, "President Lee ordered the plan to be implemented as swiftly as possible, and at the latest, within this week." The government plans to expedite necessary procedures, such as revising notifications, to ensure that the Ministry of Trade, Industry and Energy can implement the price ceiling system within the week, based on the Petroleum Business Act.

The price ceiling system will basically operate on a two-week cycle, with the maximum price determined every two weeks to reflect market conditions. Kim explained, "We are planning to design it based on a two-week cycle. If we set the initial price ceiling based on pre-crisis prices, the first ceiling will be lower than the prices currently faced by consumers in the market." In addition, the government is reviewing measures to expand the fuel tax reduction and support consumers directly affected by rising oil prices, alongside the price ceiling system. However, President Lee is understood to believe that direct support for genuinely affected groups is preferable to a blanket reduction in fuel tax.

Measures to address the asymmetric price adjustments between refiners and gas stations were also discussed. Kim said, "The government is paying particular attention to the asymmetry where refiners or gas stations raise prices quickly but lower them slowly," and explained that there was an in-depth discussion on why domestic prices jumped significantly even though the purchased volume in question has not yet entered Korea since the Middle East situation began. The government will also clamp down on market-disrupting activities. The Fair Trade Commission and the National Tax Service will focus on investigating collusion, tax evasion, and market manipulation, including checking for collusion among refiners, investigating gas station prices, conducting tax audits, and carrying out on-site inspections for fake petroleum products.

On the energy supply side, the government reviewed contingency plans for the worst-case scenario. The amount of oil imports affected by a blockade of the Strait of Hormuz stands at about 1.7 million barrels per day. Korea currently holds a strategic oil reserve of 190 million barrels, which, according to International Energy Agency (IEA) standards, would last for 208 days. However, Kim explained that, considering demand from the domestic petrochemical industry, the actual response period could be shorter.

To address this, the government will simultaneously pursue several measures: exercising priority purchase rights over 20 million barrels in joint reserves with oil-producing countries, converting the Korea National Oil Corporation's overseas production for domestic use, and securing alternative supply routes that do not pass through the Strait of Hormuz. For gas, the share of imports from the Middle East scheduled for introduction this year is about 14%, and while approximately 5 million tons of Qatari gas could face disruptions, Korea Gas Corporation and others are able to import alternative volumes, so the risk of supply disruption is considered low, according to Kim.

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Kim also stated that the possibility of preparing a supplementary budget (extra budget) in response to a protracted Middle East situation should be seriously discussed. When asked whether an extra budget could be moved up if the crisis drags on, he replied, "The economic outlook was quite good, but now the situation has changed, and we don't know how long the Middle East situation will persist. If it is not resolved early, this will result in significant funding needs."

Kim added, "There are also industries that are directly hit," and stressed, "The top priority is for the Korean economy to overcome this shock without damage. If further response is needed, we must consider it seriously." He explained, "If we respond only within the current budget limits, we cannot implement the price ceiling system. However, the oil price situation requires us to respond with the price ceiling system." He emphasized that running the price ceiling system for an extended period requires financial resources, and if funds are not secured through an extra budget or other means, it could be difficult to sustain the response.

The government also plans to raise the level of response for the financial markets. Authorities believe that recent indicators such as stock prices and exchange rates have diverged excessively from Korea's economic fundamentals due to concerns over a prolonged Middle East crisis. Accordingly, market stabilization measures totaling at least 100 trillion won and more will be implemented in a timely manner. If necessary, the existing 100 trillion won program will be expanded and additional measures will be prepared in advance.

Kim commented, "I believe the 100 trillion won program should be sufficient to handle most shocks, but we have also begun further discussions to ensure we are prepared to withstand even the worst-case scenario." The Financial Services Commission has also begun discussions with financial companies about expanding capital calls if the situation deteriorates.

Measures to stabilize the foreign exchange market will proceed in parallel. The government will push for swift passage of foreign exchange market stabilization tax amendments and the Korea-U.S. Strategic Investment Special Act currently pending in the National Assembly, and will quickly establish the National Pension Fund's "new framework." In addition, the heads of the three task forces under the "Joint Response Team for the Middle East Situation" will be upgraded from director-general to vice-ministerial level, and the Deputy Prime Minister for Economic Affairs will convert the regular Economic Ministers' Meeting into an "Emergency Economic Ministers' Meeting" system.

Meanwhile, Kim stated, "As the President said, the government will make every possible effort to turn this crisis into an opportunity for our economy," and urged, "We ask all citizens to trust the government and focus on their normal economic activities."

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