South Korea to raise fuel price cap but expand tax break to cushion blow from Iran conflict
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South Korea is set to unveil a new cap on fuel prices two weeks after introducing the ceiling to rein in pump prices.
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SEOUL – South Korea will raise a cap on fuel prices effective on March 27 at midnight and expand fuel tax breaks to ease the burden on consumers dealing with the fallout from the US-Israeli war on Iran, the government said on March 26.
The operating rate for nuclear power plants will be raised to above 80 per cent and the seasonal cap on coal power plants will be scrapped, South Korean Finance Minister Koo Yun-cheol said, as the prolonged Middle East conflict roils global energy markets and rattles Asia’s fourth-largest economy.
“As the Middle East war that began in late February enters its fourth week, the economic impact such as higher prices, supply disruptions and heightened volatility in the foreign and financial markets are increasingly evident,” Mr Koo said.
The government is prepared to use available resources to deal with “a grave situation” and could take additional action, he said.
South Korean President Lee Jae Myung held a high-level economic meeting to discuss a response to what he said was an “unpredictable situation” that, together with a complex global supply chain, made remedies difficult to formulate.
South Korea faces a particular vulnerability due to its heavy reliance on energy imports passing through the Strait of Hormuz, which has been effectively closed since early March.
It is set to unveil a new cap on fuel prices two weeks after introducing the ceiling to rein in pump prices, which was initially based on supplies and global oil prices before the conflict broke out.
In order to further cushion the energy price shock, fuel tax cuts will be expanded to 15 per cent from 7 per cent on petrol and to 25 per cent from 10 per cent on diesel, Mr Koo said.
A new export control on naphtha products will go into effect at midnight on March 27 as disruptions have hit hard the material that fuels South Korea’s large petrochemical industry, half of which is imported through the Strait of Hormuz.
South Korea plans to buy back five trillion won (S$4.26 billion) worth of treasury bonds to stabilise the market, and redeem additional bonds using the budget surplus, the Finance Ministry said on March 26.
The government also plans to step up monitoring of foreign capital inflows after South Korean bonds’ inclusion in the world government bond index in April, it said. REUTERS
