South Korea Extends Fuel Price Caps Amid Middle East Tensions

The South Korean government announced on Friday that it will keep fuel price ceilings unchanged for another four weeks starting Saturday. Maximum prices for regular gasoline, diesel, and kerosene supplied by local refiners to gas stations will remain at 1,784 won, 1,773 won, and 1,380 won per liter, respectively. This decision marks the second consecutive period that the caps have been frozen, having remained at these levels since June 27.

The Ministry of Trade, Industry and Energy attributed the move to renewed volatility in global oil markets. While Brent crude fell to around 70 dollars per barrel in early August, it rose back to 90 dollars by August 20 due to prolonged tensions in the Middle East. The price ceiling system was originally introduced in mid March to stabilize domestic prices amid supply chain disruptions.

Reports on the government's motivation differ slightly based on political framing. A center leaning source focused on the geopolitical instability in the Middle East as the primary driver for the extension. A center right leaning source emphasized the government's concern over inflation and the burden on household living costs, noting that inflation could have reached 3.6 percent in July without the cap system. This source also highlighted that South Korea has secured crude oil and naphtha supplies at levels equivalent to about 100 percent of the previous year's amount.

Additionally, the process of determining compensation for refiners who suffered losses due to the price cap system is expected to take longer than anticipated. A settlement committee formed last month is currently processing reimbursement claims for losses incurred between March 13 and June 30.