Fuel price cap risks growing side effects

 

The government allocated 5 trillion won ($3.4 billion) to support the fuel price cap aimed at reducing fuel costs and to respond to a naphtha supply crisis on March 31. The photo shows a gas station at Mannam Square in Seocho District, Seoul, the same day. [YONHAP]

 
Controversy is growing as Korea’s fuel price cap enters its first month. Introduced amid uncertainty in crude oil supply, the policy is already showing unintended effects, including rising fuel consumption. There are also concerns that inconsistent implementation could expand fiscal burdens at a time when public finances are already under pressure.
 
Under the system, the government sets refinery supply prices every two weeks. The third round of prices, applied from Friday, remained unchanged from the previous round. This diverges from the government’s earlier explanation that prices would reflect international oil trends. According to the Mean of Platts Singapore (MOPS), a benchmark for the Asian market, gasoline prices rose 1.6 percent over the past two weeks, while diesel surged 23.7 percent and kerosene climbed 11.5 percent. Despite this, the government froze prices, citing the need to ease the burden on households. Diesel, widely used for freight and delivery, appears to have been a key consideration.
 
However, operating the system without clear principles risks widening the gap between market prices and regulated prices, which in turn increases fiscal costs. The difference must ultimately be covered by public funds. About 5 trillion won ($3.4 billion) has already been allocated in a supplementary budget. In addition, diesel is not used only by vulnerable consumers. It is also consumed by drivers of large SUVs and high-end imported cars. If the aim is to support those in need, more targeted assistance would be more appropriate than broad price controls.
 

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Artificially suppressing prices has also led to higher consumption. Data from the Korea Petroleum Quality and Distribution Authority show that within two weeks of implementation, gasoline sales rose 24.7 percent and diesel sales increased 16.3 percent. This has occurred even as the government strengthened conservation measures, such as restricting the use of public vehicles. The result is a contradiction in which energy consumption rises despite efforts to reduce it.
 
At this stage, it is reasonable to question whether the price cap is an appropriate emergency measure. The more unconventional a policy, the greater the potential side effects that society must bear. To minimize these risks, the government must at least adhere to consistent principles in its operation.
 
At the same time, authorities should prepare an exit strategy to end the policy promptly once oil prices show signs of stabilization. Without such a plan, temporary intervention risks becoming prolonged distortion.


This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.