South Korea Freezes Fuel Price Caps for Fourth Round, Citing Inflation Risks

The South Korean government has again frozen the maximum prices applied to petroleum products supplied to gas stations, citing lingering uncertainty from the prolonged war in the Middle East and concerns that any increase could add to inflation.

The Ministry of Trade, Industry and Energy said Thursday that starting at midnight April 24, the fourth round of the price-cap system will apply for the next two weeks at the same levels as the second and third rounds: 1,934 won per liter for regular gasoline, 1,923 won for diesel and 1,530 won for kerosene.

The ministry said international refined-product prices have fallen over the past two weeks, easing cost pressures, but the regional situation remains unstable and additional shocks cannot be ruled out.

The ministry said that if only the recent two-week change in international prices were reflected in the formula, the fourth-round caps could have been lower than the third round by about 100 won per liter for gasoline and about 200 won for diesel.

Instead, the government said it has already restrained price increases by not fully reflecting earlier international price gains in the cap, and decided to hold the levels steady after weighing Middle East uncertainty and the need to manage fuel consumption.

Raising the caps was also seen as too risky for inflation. Nam Kyung-mo, policy adviser to the industry minister, said petroleum products account for 4.66% of the consumer price index and higher prices could feed broader inflation. He cited March producer prices rising at the fastest pace in more than four years due to high oil prices.

The government said pump prices would be higher without the cap, estimating gasoline would be around 2,200 won per liter, diesel 2,700 to 2,800 won, and kerosene around 2,500 won. Compared with the current caps, that implies a restraining effect of about 260 won for gasoline, up to 870 won for diesel and about 970 won for kerosene.

Nam said domestic pump prices are still edging up because increases in refiners’ supply prices are being reflected with a lag. He said refiners’ supply prices rose by 210 won per liter when the second-round cap was adjusted, and gas stations have been passing that on gradually.

On settlement under the cap, the government reaffirmed it will reimburse refiners for losses under Article 23(3) of the Petroleum Business Act. Nam said the government has not yet produced its own estimate of losses. He said refiners will calculate losses from March 13 through the end of June, submit figures after review by an accounting firm, and the government will confirm the final reimbursement through a price-cap settlement committee.

Asked about Prime Minister Kim Min-seok’s comments the previous day that the government would carefully review whether to implement a fourth round, Nam said it is not yet time to consider ending the system. He said the Middle East situation remains unstable and high oil prices persist, adding that a broader review could be possible if international prices stabilize, including through progress toward a ceasefire between the United States and Iran and the easing of disruptions tied to the Strait of Hormuz.

On whether a fifth adjustment will be made, Nam said the government will operate the system flexibly after considering international oil prices, the public burden, efforts to reduce consumption, support for energy-vulnerable groups and overall inflation.