Gasoline prices elevate amid Iran uncertainty

By Kang Seung-woo

Amid rising tensions between the United States and Iran, Korea’s average gasoline price has risen, raising concerns that fuel price-sparked inflation may weigh on the nation’s economy.

As prices were declining, the government is seeking ways to minimize burdens on consumers.

According to the Korea National Oil Corp. (KNOC) Tuesday, regular gasoline nationwide averaged 1,935.02 won ($1.67) per liter as of Monday, reaching a yearly high. It recorded 1,933.30 won last Thursday, increasing for four straight days.

Seoul’s average reached 2,002.54 won. The capital’s fuel prices remained stable in December, hovering in the 1,900-won range, but the Persian Gulf problem sent them back to the previous level.

The average price of eight gas stations in Yeouido registered 2,345 won on Tuesday morning.

The oil-refining industry attributes the uptrend to rising global oil prices, stemming from heightened tension in the Persian Gulf.

U.S. President Barack Obama recently signed into law a bill that imposes tough sanctions against financial institutions dealing with Iran's central bank. The Islamic state has been under growing international pressure over its nuclear weapons program, leading Korea to also announce new economic sanctions against the country last month.

Against this backdrop, Iran is threatening to close the Strait of Hormuz, which has caused Washington to show signs of possible military action. The Strait of Hormuz links the Persian Gulf to the Sea of Oman and is one of the world's most vital oil routes. Any incident there could cause the global oil market to fluctuate severely.

As a result, the benchmark Dubai crude oil, whose price had dropped to below $100 per liter, jumped back up to $110.23 as of Thursday, marking a high since the $110.59 on Nov. 16 last year.

The price of Dubai crude has increased 19 percent year-on-year.

“Possible military action between the United States and Iran has resulted in a hike in global oil prices, which has raised local gasoline prices. If the hostility develops into a war, the global price will soar and it will pose a big threat to the nation’s inflation policy,” said an official from the oil-refining sector.

President Lee Myung-bak said earlier this year that the government will make efforts to curb inflation within the low 3 percent range, but soaring fuel prices may put the target in jeopardy.

According to the Korea Development Institute (KDI), a 10 percent gain in global oil prices leads to a 0.12 percentage point rise in consumer prices and a 0.2 percentage point decline in the annual economic growth along with a loss of $2 billion in the current account.

In addition, amid the European debt crisis weighing on the global economy, high oil prices can result in stagflation.

Iran is the world’s fourth-largest crude oil exporter and Korea had bought 74.23 million barrels of crude oil from the nation as of the end of October, accounting for 9.6 percent of total oil imports worth $7.7 billion, according to KNOC. Last year, the nation imported about 8.3 percent of its crude from Iran.

If Asia’s fourth-largest economy halts oil imports from the Persian Gulf nation, high oil prices and a lack of supply could occur at the same time.

In order to prevent any fallout from the Iran sanctions, Korea plans to officially ask the U.S. government for an exemption from the action that could damage its imports of crude oil.

Coincidently, Seoul is considering reducing its dependence on oil imports from Iran in response to the U.S. sanctions as an ally.

A government official said on Sunday that Korea can attain the reduction target through voluntary efforts by private oil importers to look for alternative channels.

According to the oil-refining industry, the United Arab Emirates is emerging as an alternative to Iran, as the nation’s oil imports from the Middle Eastern country represented 9.6 percent of the total imports as of the end of November last year from 12.1 percent in 2010.