The oil price cap, implemented in response to soaring international energy prices due to the Middle East conflict, has contributed to stabilizing domestic fuel costs, according to a recent analysis. However, as the policy has been in place for over seven months, there are concerns that it may weaken the supply incentives for refiners and increase financial burdens. Experts suggest that targeted support for vulnerable groups, supply stability, and a gradual normalization of the policy are necessary.
The Korea Institute for Industrial Economics and Trade released a report on the effects of the oil price cap and policy responses on October 27. The Ministry of Trade, Industry and Energy announced that the 11th price cap, which is in effect from October 17 to November 13, will remain frozen at the same level as the previous cap. This marks the fourth consecutive freeze since the cap was lowered on June 27. As a result, the maximum prices for petroleum products supplied by refiners to gas stations are set at 1,784 won per liter for gasoline, 1,773 won for diesel, and 1,380 won for kerosene.
According to the report, energy prices in South Korea, China, and Thailand, where the government implemented direct energy price management policies from March to August this year, rose by an average of 15.0% compared to the same period last year. In contrast, the United States and Germany, which responded with supply expansion and tax cuts, saw average increases of 24.9%. The price increase gap between the two groups reached 9.9 percentage points.
The Korea Institute for Industrial Economics and Trade assessed that this difference highlights the cushioning effect of price management policies. However, it noted that variations in energy price indicators, exchange rates, taxes, and policy measures among countries prevent a definitive conclusion that the price cap is solely responsible for the observed differences.
In South Korea, the increase in gasoline prices has remained relatively stable. The retail price of gasoline rose by 11.8% in August compared to the same month last year and increased by 11.9% in September, with the rate of increase only slightly higher by 0.1 percentage points. During the same period, the retail price increase for regular gasoline in the United States expanded from 29.5% to 37.6%, a rise of 8.1 percentage points. In Germany, the consumer price increase for vehicle fuel also rose from 27.7% to 37.1%, an increase of 9.4 percentage points.
This indicates that the speed and extent to which the shock from rising international energy prices is passed on to domestic consumer prices is limited. This is due to the differing price management methods among countries; South Korea set a cap on the supply price from refiners rather than on retail prices at gas stations. China limited the increase under its existing price management system, while Japan provided subsidies to refiners and importers. The U.S. responded by releasing strategic oil reserves, and Germany implemented temporary fuel tax reductions and price adjustment rules.
The Korea Institute for Industrial Economics and Trade explained that the price cap can serve as an emergency measure that provides households and businesses with time to adjust to shocks. By slowing the transmission of rising international oil prices to fuel and logistics costs, households can adjust their spending, and businesses can secure funds or modify contract terms.
However, the long-term costs of maintaining the policy pose a challenge. The price cap does not reduce the actual costs of procuring petroleum products in the international market. Since it shifts some of the costs to refiners or the government, maintaining the price ceiling for an extended period could diminish production and import incentives for businesses and increase the government's burden of compensating for losses. There is also a risk of a sharp price increase after the policy ends, as suppressed prices may surge.
Therefore, rather than immediately abolishing the price cap, experts recommend adjusting the ceiling based on international product prices, exchange rates, and inventory levels, and gradually normalizing the policy as market conditions stabilize. They also emphasize the need to transparently settle losses by verifying the actual procurement costs and freight and insurance fees of refiners while focusing support on low-income households and sectors heavily impacted, such as essential transportation and agriculture.
Additionally, efforts should be made to diversify supply sources, improve energy efficiency, and provide liquidity support for raw material procurement. Senior Research Fellow Kim Soo-dong stated, "We should not evaluate policy outcomes solely based on price changes; a comprehensive assessment of household burdens, actual production and exports in industries, supply stability, and fiscal burdens is essential."
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.