Tensions between the United States and Iran are escalating, raising concerns that military confrontations could delay the termination of the oil price cap. As tensions in the Strait of Hormuz rise and international oil prices fluctuate, the end of the price cap may be further off than anticipated.
On June 28, the Islamic Revolutionary Guard Corps (IRGC) of Iran claimed responsibility for missile and drone attacks targeting U.S. military facilities in Kuwait and Bahrain as retaliation for U.S. airstrikes. This follows an incident in which a tanker was attacked in the Strait of Hormuz, prompting the U.S. to strike Iranian military sites.
President Donald Trump indicated a hardline stance on social media, stating, "We may reach a point where we can no longer be reasonable, and we must militarily finish what we started very successfully. If that happens, the Islamic Republic of Iran will no longer exist."
The ongoing military clashes complicate the government's calculations regarding the oil price cap. The government has previously stated that the end of the price cap would depend on the conclusion of hostilities between the U.S. and Iran, normalization in the Strait of Hormuz, and stabilization of international oil prices. However, if these confrontations escalate, there are concerns that the international oil market may react negatively, disrupting crude oil supply.
Initially, the government was also considering an exit strategy for the oil price cap, as the increase in tanker traffic through the Strait of Hormuz had brought international oil prices closer to pre-war levels. Through the seventh oil price cap, the government reduced the maximum prices for gasoline and diesel by 150 won per liter, which was seen as a measure to prepare for the effects of lifting the price cap.
Should localized conflicts between the U.S. and Iran persist, some analysts predict that the termination of the oil price cap may not occur until the fall. The summer season, characterized by high demand for cooling and vacations, makes fuel prices more volatile, complicating the lifting of regulations. Authorities believe that the fall, when energy demand typically decreases, will present less burden for price adjustments.
Additionally, the possibility of extending the strategic oil reserve swap with refiners cannot be ruled out. The government had initially planned to conclude the swap by the end of this month. However, if shipping through the Strait of Hormuz is disrupted, the end date for the swap may be extended.
Nonetheless, extending the oil price cap until August poses a financial burden on the government due to the increased fiscal input required. The government has stated that it will use a supplementary budget of 4.2 trillion won to compensate for losses incurred under the price cap. As discussions continue between the refining industry and the government regarding compensation standards, concerns are growing that financial resources may be insufficient if the cap is extended further.
* This article has been translated by AI.
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