Did the Oil Price Cap Cause a Consumption Surge? Presidential Policy Chief Systematically Refutes Claims

Kim Yongbeom, policy chief at the Blue House, systematically refuted the controversies surrounding the "KRW 4.2 trillion taxpayer funding" and "surge in consumption" related to the oil price ceiling policy. He emphasized that the KRW 4.2 trillion in fiscal resources allocated through the so-called "war supplementary budget" does not serve to cover refiners' losses, but rather acts as a safety net to prepare for potential actual negative margins that could arise if high-priced crude oil is introduced in the future. Addressing the claim that gasoline sales have surged since the implementation of the price ceiling, he pointed out that while such interpretations focus on a specific point in time, gasoline sales in the three weeks following the policy's enforcement rose by only 0.3% year-on-year, and diesel sales actually declined.

Kim Yongbeom, policy chief, is briefing on the results of the emergency economic inspection meeting related to the Middle East situation held that morning at the Chuncheon Press Center of the Blue House on the 9th. Photo by Yonhap News, March 9, 2026.

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In a Facebook post titled "Oil Price Ceiling: Beyond Misunderstandings, What Did We Choose?" on this day, Kim stated that the policy-revived nearly 30 years after being effectively scrapped following the liberalization of oil prices in 1997 amid the shock of the Iran war-has been debated within "a few entrenched frames rather than a structural understanding" of the government's approach.

First, regarding criticisms that "refiners' losses are being compensated with taxes," Kim explained that the gasoline and diesel currently sold domestically are produced from crude oil imported at around USD 60 per barrel before the war. This means that, at present, the industry is not experiencing actual negative margins, but is instead in a period of inventory valuation gains. He argued that the inability to raise domestic prices despite rising international prices is less an actual loss and more a policy choice to curb excess profits, and that inventory valuation gains in accounting terms must also be distinguished from cash flow.

Kim stated, "The real loss period has not yet begun. When crude oil contracted at over USD 100 after the war begins entering the refining process, actual negative margins may occur as the price ceiling falls below real costs." He went on to clarify, "The KRW 4.2 trillion in fiscal resources is not currently being used as compensation, but is more of a mechanism in preparation for potential future losses."

He also pointed out distortions in the criticism that suppressed prices led to a consumption surge, identifying flaws in the time series analysis. The frequently cited figure of a 24.7% increase in gasoline sales within two weeks of implementation is the result of a simple comparison before and after the policy was enacted. He explained that this is a short-term phenomenon driven by both the price drop and a preemptive buying sentiment to "fill up before prices rise again."

He said, "If you look at a broader period, gasoline sales in the three weeks after the price ceiling was enforced increased by only 0.3% year-on-year, while diesel sales actually declined," adding, "It is difficult to conclude that consumption has structurally surged." However, he also acknowledged, "There is a clear issue in that the weakening of price signals reduces incentives for energy conservation," highlighting the policy's limitations.

Regarding the stronger suppression of diesel prices compared to gasoline, he explained that this was a policy choice aimed at mitigating shocks to prices and the real economy. When the first ceiling prices were set, gasoline was pegged KRW 109 lower and diesel KRW 218 lower, effectively aligning the prices of the two fuels. Although diesel prices were higher in the international market, the government considered that diesel is not a consumer good but rather a fuel for production and logistics, meaning price increases would ripple through to freight transportation costs, food prices, and public transportation fares. On the decision to freeze prices during the third adjustment, even as international diesel prices surged, Kim said, "If you look solely at price principles, criticism is possible, but it should be viewed as a choice made with the broader goal of price and real economy stability in mind."

On the method for determining the ceiling price, Kim stressed that the prices were not set arbitrarily. The ceiling is calculated based on a rules-based system reflecting the two-week average change in Singapore's Mean of Platts Singapore (MOPS) benchmark prices. Addressing the partial flexibility applied during the third adjustment, he said, "This was not a flaw in the system, but an example of policy intervention amid extreme volatility."

Kim also refuted claims that the crude oil swap system for refiners is a unilateral privilege. He explained that while refiners borrow government-held stockpiled oil while securing alternative crude, they are required to pay not only a rental fee but also compensate for any price differences between the stockpiled and replacement crude, making it difficult to view the system as unilateral support. He added that, especially in situations like the current surge in Middle Eastern oil prices, refiners may actually have to bear the price difference.

Regarding transparency in loss compensation, Kim stated that a separate settlement committee and external accounting verification procedures have been established. However, he acknowledged that debates over the actual cost calculation and margin estimates remain possible, and identified these as key variables affecting future policy credibility.

Meanwhile, Kim cited Korea's refining capacity, domestic supply control, and business structure capable of settling losses as prerequisites for the price ceiling policy. "Because Korea has large-scale refining facilities and a supply system centered on domestic demand, it was possible to combine export adjustments, the use of stockpiled oil, and price regulation into a single package," he explained.

He also cautioned, "This policy inevitably comes with clear costs-including price signal distortion, distribution structure confusion, and the potential for market function impairment if prolonged. Nevertheless, the government opted to mitigate short-term shocks. This is not a matter of right or wrong, but rather a choice about which costs to bear," he concluded.

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