Domestic gasoline consumption rose last month even as international oil prices surged on an escalating war in the Middle East. According to the Korea Petroleum Quality & Distribution Authority on the 15th, gasoline sold through gas stations and other outlets in September totaled about 1.26 million kiloliters, up 2.97% from a year earlier. It was the first increase in gasoline consumption since March, just after the war broke out. The monthly average price of Dubai crude, the benchmark for South Korea's oil imports, climbed $25 in a single month to $113.7 a barrel last month. Consumption still rose, likely driven in large part by increased freight and travel over the Chuseok holiday. But it cannot be overlooked that the government has held fuel prices down for an extended period through a cap on petroleum prices and even offered highway fuel discounts during the holiday, effectively encouraging energy use.
Seven months have passed since the government introduced the petroleum price cap on the grounds that it would ease the burden on households from surging international oil prices. The price-control policy holds the prices of gasoline, diesel and kerosene supplied by refiners to gas stations and other outlets below a set level, with the resulting losses covered by state funds. Even as global oil prices swung sharply, the policy has kept the ceiling on gasoline at 1,784 won per liter for four straight months. With public funds absorbing the inflation shock, the burden on households has eased somewhat, but side effects of comparable scale have begun to surface. The rise in gasoline consumption is evidence that consumers have fallen into a complacency about the crisis and are using fuel freely at a time when energy conservation is urgently needed. The fiscal burden from prolonging the system is also growing heavier.
The government will set the 11th round of petroleum price ceilings on the 16th. With President Lee Jae-myung repeatedly stressing a recovery in household livelihoods, the existing ceiling appears likely to be frozen again. But if the government continues a policy that disrupts the order of the supply-and-demand market, fixated on the immediate effect of easing prices, the economy could pay a far greater price. Bank of Korea Governor Shin Hyun-song also warned at a recent parliamentary audit of government agencies that "if price controls such as the petroleum price cap are prolonged, there could be various side effects." To minimize the aftereffects, including distorted consumption, market distortions and a worsening fiscal position, the government should begin searching for an exit now. This is the moment to shift policy from across-the-board price controls to targeted support for households vulnerable to energy costs.