Middle East conflict drives up oil prices; South Korea considers implementing a price cap for the first time in 30 years.

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Affected by concerns over rising energy prices triggered by the escalation of the Middle East conflict, the South Korean government is considering implementing a fuel price cap for the first time in nearly 30 years.

According to Yonhap News Agency on Sunday, citing sources, after the US and Israel launched strikes against Iran, global crude oil prices surged and were reflected almost immediately in domestic fuel prices in South Korea—rather than the usual two-week lag. This prompted South Korean officials to begin reviewing the possibility of implementing a fuel price cap.

South Korea relies heavily on energy imports and is particularly sensitive to external price shocks, which often drive up inflation. This review is based on Article 23 of South Korea's Petroleum and Alternative Fuel Business Act, which allows the Minister of Industry to designate maximum sales prices when oil prices fluctuate violently and threaten economic stability. However, since South Korea liberalized oil prices in 1997, this clause has effectively remained dormant.

South Korean President Orders Price Cap Plan

Sources said the government is weighing this option cautiously due to potential side effects, including market distortions and fiscal burdens.

South Korean President Lee Jae-myung instructed officials during a special Cabinet meeting on Thursday discussing the US and Israel strikes on Iran that, if implementing a nationwide unified cap proves difficult, a price cap system should be quickly developed by region and fuel type.

The next day, Lee Jae-myung also warned refiners against possible collusion in raising gasoline prices.

Domestic Oil Prices Surge in South Korea, Average Gasoline Exceeds $1.27

Following the President’s instructions, the government established an interdepartmental task force to crack down on illegal oil distribution, hoarding, and unfair trade practices.

In addition, the government decided to obtain more than 6 million barrels of crude oil from the United Arab Emirates to stabilize energy supplies.

Despite these measures, gasoline prices at South Korean gas stations continue to rise. According to Korea National Oil Corporation data, as of Saturday night, the average gasoline price exceeded 1,890.87 won per liter ($1.27).

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