Despite the recent breakthrough in the U.S.-Iran conflict and a subsequent drop in international oil prices, South Korean motorists are yet to see significant relief at the pump. As of the third week of June, the national average gasoline price in South Korea stands at 2,009.2 won per liter, remaining above the 2,000-won threshold for five consecutive weeks. 

The Lag in Market Reflection
The primary reason for this persistence is the "supply lag." It typically takes two to three weeks for crude oil purchased at international market prices to be transported, refined, and distributed to local gas stations. Currently, gas stations are still selling fuel supplies that were purchased at higher costs during the peak of the recent tensions. 

Furthermore, the strength of the U.S. dollar against the Korean won has blunted the positive impact of falling global oil prices. Because crude oil is traded in dollars, the high exchange rate—hovering above 1,500 won—offsets the benefits of cheaper oil imports. 

Government Price Caps and Economic Uncertainty
Adding another layer of complexity is the South Korean government’s fuel price ceiling system. On June 18, the government extended the sixth round of its price cap, maintaining maximum wholesale prices at 1,934 won for gasoline and 1,923 won for diesel.

While this policy was designed to shield consumers from extreme volatility, it has created a "dilemma" for the government. Prolonged price controls have strained the national budget, with estimated compensation costs to refiners exceeding 3 trillion won, and have led to a surge in closures for independently owned gas stations struggling with razor-thin margins. 

The Ministry of Trade, Industry and Energy remains cautious about lifting these caps. Although a Memorandum of Understanding (MoU) between the U.S. and Iran was signed on June 17, aimed at ending military operations and reopening the Strait of Hormuz, officials argue that the supply chain has not yet fully normalized. The government plans to monitor the stability of the Strait—which handles roughly 20% of the world’s petroleum—before deciding on the seventh round of price adjustments or a total phase-out of the policy. 

When Will Prices Fall?
Industry experts suggest that for domestic pump prices to consistently drop below the 2,000-won mark, international crude oil needs to stabilize further, ideally around the $70-per-barrel range. While the recent MoU is a positive sign, the lingering effects of the war, the need to replenish strategic reserves, and the necessity of clearing existing high-cost inventories mean that a return to pre-war price levels will likely be a gradual process. 

For now, the government continues to prioritize stability over a swift return to market-driven pricing, keeping a watchful eye on the fragile peace in the Middle East.

[Copyright (c) Global Economic Times. All Rights Reserved.]