Take measures to minimize economic fallout
The rising international crude prices are spiking up domestic oil prices, increasing inflationary pressure and dimming the business outlook for local enterprises. The higher level of oil prices is likely to dampen economic recovery. The prices of U.S. West Texas Intermediate (WTI) and Brent crude stood at $109.30 and $116.00 a barrel Monday, respectively. This represents a drastic surge from a month earlier when the prices stood below $90 a barrel.
The average gasoline price across the nation climbed to 2,001 won ($1.64) per liter Monday, while that of diesel also rose to 1,920 won, hitting the highest in 14 years, according to the Korea National Oil Corp. (KNOC). This is bad news for the export-oriented Korean economy that is highly vulnerable to price fluctuations in global resources markets.
The price hike has already begun to affect the nation's trade balance. Imports of the three major energy resources ― crude, gas and coal ― soared 85.4 percent between Jan. 1 and March 20, compared to the same period a year earlier. This has caused the country to suffer a trade deficit of $5.97 billion so far this year, according to the Korea Customs Service. The shortfall is in stark contrast with the $6.6 billion surplus registered during the corresponding period of last year.
Major enterprises have already felt the pain of the surging oil prices. According to a recent survey by Mono Research commissioned by the Federation of Korean Industries (FKI), two-thirds of 151 companies foresaw their businesses will go to the red if the oil prices surge to $150 per barrel. All the respondents replied they will have to shut down their plants completely if the prices surpass $200 a barrel. All these well prove the gravity of the situation.
The recent price surge has been prompted by the United States' and its allies' import ban on Russian oil following the Russian invasion of Ukraine. Russia is the world's second-largest oil-producing state. Worse still, the ongoing war shows few signs of ending in the near future. It will likely continue for an extended period of time, further increasing the sense of crisis over another oil shock.
Enterprises should take proper measures to lower production costs and enhance productivity in order to prepare for a looming energy crisis. The government, for its part, should also do everything it can to minimize the impact by, for instance, further curtailing fuel taxes. The Ministry of Economy and Finance is seeking to extend the current 20 percent tax cut, set to expire on April 30, until the end of July. Yet it needs to consider raising the reduction to as high as 30 percent. The Moon Jae-in administration should take additional steps to ease the burdens on cargo truck drivers who feel the pinch of the steep rise in diesel prices.
The rising international crude prices are spiking up domestic oil prices, increasing inflationary pressure and dimming the business outlook for local enterprises. The higher level of oil prices is likely to dampen economic recovery. The prices of U.S. West Texas Intermediate (WTI) and Brent crude stood at $109.30 and $116.00 a barrel Monday, respectively. This represents a drastic surge from a month earlier when the prices stood below $90 a barrel.
The average gasoline price across the nation climbed to 2,001 won ($1.64) per liter Monday, while that of diesel also rose to 1,920 won, hitting the highest in 14 years, according to the Korea National Oil Corp. (KNOC). This is bad news for the export-oriented Korean economy that is highly vulnerable to price fluctuations in global resources markets.
The price hike has already begun to affect the nation's trade balance. Imports of the three major energy resources ― crude, gas and coal ― soared 85.4 percent between Jan. 1 and March 20, compared to the same period a year earlier. This has caused the country to suffer a trade deficit of $5.97 billion so far this year, according to the Korea Customs Service. The shortfall is in stark contrast with the $6.6 billion surplus registered during the corresponding period of last year.
Major enterprises have already felt the pain of the surging oil prices. According to a recent survey by Mono Research commissioned by the Federation of Korean Industries (FKI), two-thirds of 151 companies foresaw their businesses will go to the red if the oil prices surge to $150 per barrel. All the respondents replied they will have to shut down their plants completely if the prices surpass $200 a barrel. All these well prove the gravity of the situation.
The recent price surge has been prompted by the United States' and its allies' import ban on Russian oil following the Russian invasion of Ukraine. Russia is the world's second-largest oil-producing state. Worse still, the ongoing war shows few signs of ending in the near future. It will likely continue for an extended period of time, further increasing the sense of crisis over another oil shock.
Enterprises should take proper measures to lower production costs and enhance productivity in order to prepare for a looming energy crisis. The government, for its part, should also do everything it can to minimize the impact by, for instance, further curtailing fuel taxes. The Ministry of Economy and Finance is seeking to extend the current 20 percent tax cut, set to expire on April 30, until the end of July. Yet it needs to consider raising the reduction to as high as 30 percent. The Moon Jae-in administration should take additional steps to ease the burdens on cargo truck drivers who feel the pinch of the steep rise in diesel prices.
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