South Korea adds $17.1 billion to its budget, Lee Jae-myung: Middle East energy issues "keep me awake at night"

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The energy crisis triggered by the Middle East conflict is having a comprehensive impact on South Korea's economy. Seoul announced on Tuesday the launch of an additional budget of over $17 billion to address the pressure of high oil prices. According to Global Times, President Lee Jae-myung admitted on the same day that the energy situation is "worse than expected," making him "unable to sleep."

The South Korean government on Tuesday proposed a supplementary budget with a total value of 26.2 trillion won (about $17.1 billion), of which more than 10 trillion won is directly allocated to "ease the burden of high oil prices." The budget document shows that Minister for Planning and Budget Park Hong-geun stated, "Fiscal support must be provided quickly in order to promptly ease the public’s pressure and ensure the hard-won spark of economic recovery under the current government does not die out."

Just one day before the budget proposal, Lee Jae-myung issued a warning at a meeting held on Jeju Island. He said energy issues have caused turmoil globally, the situation is extremely severe, "worse than expected, and may become even more unstable in the future." He also called for accelerating the spread of electric vehicles, emphasizing that the current pace is "too slow," and "this is now an emergency."

The source of funds for this budget will mainly rely on tax increases driven by booming chip exports and gains from the rising stock market. The proposal has been submitted to the Korean National Assembly, and is expected to receive support from the opposition People Power Party and likely to be approved by April 10.

Over 10 trillion won directly eases pressure, oil subsidies at the core

Out of the 10.1 trillion won in special funds to address high oil prices, 5 trillion won will be used for an oil price cap mechanism—this mechanism was announced by Lee Jae-myung on March 9, and from midnight March 13, a cap was set on refinery supply prices, with a second round of caps initiated on March 27.

Seoul will also provide greater refunds to monthly public transit pass holders nationwide, and allocate 4.8 trillion won to issue consumer vouchers to the bottom 70% income group, with amounts per person ranging from 100,000 to 600,000 won depending on income level and region. The scope of subsidies also covers fuel subsidies for farmers, fishermen, and small cargo ship operators. In addition, about 9.7 trillion won will be allocated to increase subsidies to local governments, and the remaining part will be used to support exporters.

94% of energy dependent on imports, Middle East supply shock hits the key

South Korea's high dependency on Middle Eastern energy makes it the first to bear the brunt in this round of conflict. According to the Korea Energy Statistical Information System's 2024 report, 94% of South Korea’s energy relies on imports, and about 72% of crude oil comes from the Middle East.

Since the U.S. and Israel launched attacks on Iran on February 28, international oil prices have surged, and supply shortages have hit the entire Asian region, with particularly severe impact on economies heavily reliant on Middle Eastern imports. As Asia’s fourth-largest economy, South Korea faces especially acute pressure. Meanwhile, the naphtha shortage triggered by the Middle East conflict has spread to multiple industries, with plastic products—such as garbage bags and plastic containers—especially affected. The Korean Ministry of Trade, Industry and Energy has imposed a complete ban on naphtha exports as of midnight March 27 to ease domestic supply shortages.

Faced with persistently high energy import pressure, Lee Jae-myung has made accelerating electric vehicle adoption a key strategic response. He said the government has proposed the goal of switching all rental cars to electric vehicles, and relevant policies "must be boldly and swiftly implemented." Lee Jae-myung emphasized that the current pace of policy advancement is "too slow," and clearly defined the situation as an "emergency."

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