Governments around the world are stepping up interventions to curb soaring fuel prices. The number of countries implementing fuel relief measures to ease consumer burdens has surged by 1.7 times over the past four months, driven by persistent petroleum product supply shortages stemming from the prolonged Middle East conflict. While South Korea has also capped fuel prices through measures like the maximum petroleum price system, the growing fiscal burden of sustaining these policies has emerged as a major challenge.

According to the International Energy Agency’s (IEA) October Oil Market Report released on the 26th, petroleum product exports from the Middle East plummeted by 59.6% from 4.7 million barrels per day prior to the war to 1.9 million barrels per day last month. While crude oil supply has recovered to pre-war levels by utilizing alternative shipping routes, petroleum product supply remains tight due to disruptions in refinery operations. Between January and September of this year, global exports of diesel and heating oil dropped by 10% compared to the same period last year.

This supply shortage continues to drive up international petroleum product prices. Wholesale diesel prices in the United States exceeded $200 per barrel last month, marking a 94% surge from pre-war levels. Rising diesel prices—widely utilized in freight transport, agriculture, and general industries—inevitably increase transportation and production costs, intensifying upward pressure on inflation. The IEA forecasted, "Even if refinery throughput recovers rapidly by the end of the year, diesel supply in the fourth quarter will still fall short of demand," adding that "it will be difficult to replenish depleted inventories before the second half of 2027."

Amid this global supply crunch, domestic fuel prices in South Korea have risen relatively moderately compared to other nations. According to data compiled by the Korea National Oil Corporation, the average domestic gas station price for diesel rose by about 15%, from 1,598 won per liter on February 28—just before the outbreak of the war—to 1,843 won per liter on the 19th of this month.

Regular gasoline and diesel prices at domestic gas stations recorded 23 consecutive weeks of decline from the third week of May to the third week of this month. In contrast, statistics from the American Automobile Association (AAA) showed that as of the 19th, U.S. gasoline and diesel prices jumped by approximately 44% and 68%, respectively, compared to February 28, displaying a much steeper upward trajectory.

The maximum petroleum price system, implemented since March 13, is cited as a key factor that cushioned domestic price spikes. Immediately following the outbreak of the war, as petroleum product prices spiked, the government introduced a system capping the gasoline and diesel prices supplied by refineries to gas stations.

The initial caps were set at 1,724 won per liter for gasoline and 1,713 won per liter for diesel, which were 109 won and 218 won lower than the average refinery supply prices at the time, respectively. Subsequently, on March 27, the government raised the supply price caps by 210 won per liter across all product types, lowered them by 150 won three months later on June 27, and has maintained the same level ever since.

In a recently published report titled "Price Stabilization Effects of the Maximum Petroleum Price System," the Korea Institute for Industrial Economics and Trade (KIET) estimated that the price cap has had an stabilizing effect of up to 239 won per liter on regular gasoline since its application on June 27. The system also exerted a downward pressure on overall consumer inflation.

Last month's consumer price index rose by 2.9% year-on-year, but the Ministry of Economy and Finance analyzed that without the price cap, the inflation rate would have reached 3.5%. It is estimated that the system suppressed inflation by an average of 0.6 percentage points per month between March and September.

Other countries are also expanding government interventions to mitigate the shock of high oil prices. Citing IEA statistics, the Financial Times reported that the number of countries implementing measures to ease consumer energy price burdens rose from 56 in late April to 94 early last month.

Countries providing fuel subsidies increased from 16 to 38, while those cutting energy-related taxes grew from 40 to 57. Nations enforcing price caps on fuel also expanded from 16 to 23. Notably, Japan has been providing subsidies to the refining industry since March to suppress gasoline prices to around 170 yen (approx. 1,430 won) per liter. According to the Tokyo Shimbun, budget allocations for this effort over the span of roughly six months reached 1.2 trillion yen (approx. 10.1 trillion won).

Similarly, in South Korea, the prolonged enforcement of the maximum petroleum price system inevitably increases the government's fiscal burden to compensate for refinery losses. To cover these losses, the government allocated 4.2 trillion won in reserve funds in this year's supplementary budget and reflected an additional 1.4497 trillion won for fourth-quarter loss compensation in next year's budget bill. KIET advised, "It is necessary to design an exit strategy step-by-step depending on how the additional benefits and costs of the regulation evolve," adding that "adjustments or terminations should be considered by comparing the risks of price rebound with the costs of extending the regulation."

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