South Korea has added relief payments to its sweep of measures to tackle the ongoing oil crisis as the country grapples with what the government has described as an economic “war-like situation”.
Iran’s blockade of the Strait of Hormuz has continued to strangle global oil supply, leaving Asia, which would typically receive 80 per cent of the crude oil and liquefied natural gas (LNG) that passes through the key waterway, particularly exposed.
South Korea – one of Australia’s top fuel suppliers – is among the most vulnerable, with the nation’s President urging its 50 million citizens to “save every drop of fuel” amid shortages and price hikes.
Average gasoline prices in Seoul surpassed 2,000 won ($AU1.89) per litre in April, marking their highest level since mid-2022.
“The government recognises this crisis as an economic ‘war-like situation’ and is mobilising all available resources to overcome the challenges at hand,” President Lee Jae-myung said during his budget speech at the National Assembly in April.
“The current crisis is not a passing shower that quickly subsides, but rather a massive storm whose duration is uncertain, making it all the more severe.”
This week, the nation introduced a fresh measure to help offset rising fuel prices, launching relief payments for about 70 per cent of the population.
The “relief funds for high oil prices”, which began accepting applications on Monday and will be distributed in May, range from 100,000 won to 600,000 won ($AU94 to $AU567) depending on an individual’s financial situation.
Those receiving basic livelihood security benefits will receive 550,000 won, while single-parent households and those classified as near poor will be given 450,000 won.
The broader public will be able to apply for the payments from May 18, The Korea Herald reports, noting most foreign residents are not eligible.
One of the world’s largest importers
South Korea is highly dependent on imported energy, importing 98 per cent of its fossil fuel consumption, including about 1 billion barrels of crude oil annually.
About 70 per cent of its oil and 20 per cent of its LNG comes from the Middle East.
“Asian countries have purpose-built refineries that take on most of the crude oil that comes out of The Gulf, particularly the UAE, Saudi Arabia, Kuwait, and even oil from Iran. This supply is stuck in the Strait of Hormuz and it has created a lot of panic,” Dr Lurion De Mello, an energy economist and Course Director for the Master of Applied Finance at Macquarie University, told news.com.au.
“South Korea doesn’t have any natural resources, the same as Japan. It’s also one of the world’s largest crude oil and naphtha importers, and supplies not just Australia but also America with jet fuel as well, particularly on the West Coast.”
As Iran’s blockade continues to choke global fuel supplies, Dr De Mello praised South Korea for being “one of the first countries, like Sri Lanka, that encouraged the population to be careful with fuel consumption” in a bid to cut down demand.
On top of relief payments, the nation last month introduced a number plate rotation system.
The policy, introduced on April 8, restricts vehicles with number plates ending in odd numbers to only be used on odd-numbered dates, while those ending in even numbers are allowed on even-numbered days.
The rule is mandatory for state officials and public-sector workers, but currently advisory for the general public.
Mr Jae-myung’s government has also urged citizens to take shorter showers and use washing machines and vacuum cleaners only on weekends to save energy.
To reduce reliance on LNG, South Korea also announced it will speed up the restart of nuclear reactors undergoing maintenance.
The Gori-2 reactor was restarted in April after it was shut down for three years for safety checks, and four reactors are expected to return by mid-May.
Coal generation could also be increased when air pollution levels are low.
Turning to the US
South Korea has also begun urgently diversifying its oil supply, relying more heavily on the US for naphtha, a key critical ingredient used to make petrol.
Before the conflict, the US was ranked seventh for South Korea’s naphtha imports.
But according to the Ministry of Trade, Industry and Resources, South Korea has now become the largest exporter to the nation since the outbreak of the war, with US shipments now accounting for 24.7 per cent of South Korea’s naphtha imports.
This is followed by 23.2 per cent from India, 14.5 per cent from Algeria, 10.2 per cent from the United Arab Emirates (UAE) and 4.5 per cent from Greece.
“The U.S. has emerged as the largest import source because it was easier to secure supplies from the country in terms of availability,” Yang Ghi-wuk, deputy minister for trade, industry and resource security, said this week.
However, Dr De Mello said South Korea will still have to wait to get its hands on the valuable resource, with records showing the average shipment from the US to South Korea takes about 50 days.
“There’s a big area called Corpus Christi in Texas, where most of the oil is coming from. And the data for the latest (shipment shows) there’s a departure date on the 24th of May and an arrival date in South Korea on the 13th of July, so that’s over six to seven weeks for the fuel to arrive.”
Outside of the US, South Korea has also managed to secure 2.1 million tons of naphtha and 273 million barrels of crude oil from the Middle East and Kazakhstan, which will be shipped through alternative routes not affected by Iran’s blockade of the Strait of Hormuz by the end of the year.
“The 273 million barrels of crude oil, based on last year’s consumption levels, are sufficient to sustain the economy for more than three months under normal operating conditions without the need for additional emergency measures,” Presidential chief of staff Kang Hoon-sik said in April.
What it means for Australia
As one of Australia’s top fuel suppliers, South Korea is responsible for nearly 30 per cent of diesel imports and more than 22 per cent of petrol.
“Being a net importer of crude oil and all these other products that make fuel, for South Korea, it’s a very hard decision to kind of say, ‘Hey, how much do we keep supplying Australia and New Zealand and a few other places that they supply and maintain sovereign capability?” It is a tough situation,” said Dr De Mello.
Australia also relies on South Korea for jet fuel, responsible for 18 per of our total jet fuel imports.
“Jet A1 fuel, which is used for long-haul flights, is falling short in supplies,” said Dr De Mello.
“The cost doubling of jet fuel plus the supply of that particular jet A1 fuel is causing airlines, including Korean airlines, to cut their routes.”
However, Dr De Mello doesn’t believe South Korea will cut off supply to Australia even if the conflict stretches on.
“I don’t think South Korea will do what China has done and just say, ‘Sorry, Australia, we’re keeping jet fuel to ourselves’ … they’ll continue supplying to Australia.”
Foreign Minister Penny Wong, who travelled to Asia this week. has since revealed China has agreed to take a major step to resume jet fuel exports to Australia after stalling exports, announcing the “Chinese government is facilitating engagement with Australian businesses on jet fuel.”
The government also announced this week that South Korea and Australia agreed to renew their commitment “(to) work together to maintain a stable, secure and reliable supply of diesel and other liquid fuels.”
In a statement, the government said both nations reaffirmed a shared commitment to open markets and rules-based trade and agreed to work together to address unjustified import and export restrictions.
Both nations also agreed to “notify and consult” each other on potential trade disruptions, giving Australia advance warning of any fuel shortages.
“The Albanese Government is working with international partners to help secure the supplies we need – including diesel, petrol and fertiliser – and ensure Australia is prioritised as a reliable energy partner, said Foreign Minister Penny Wong, who visited South Korea this week.”
“We will continue working together to strengthen energy security, manage global shocks and help ensure peace, stability and prosperity in our region.”
It comes after Prime Minister Anthony Albanese announced last week that an extra 200 million litres of diesel are headed for Australian shores, including two cargoes from South Korea, one from Brunei and another from Malaysia.
Energy Minister Chris Bowen said the extra cargoes would provide “extra supply to give us an extra buffer” and would arrive in Australia by the last week of May or the first week of June.
