Embargo on Iranian oil leads to higher gasoline and utility prices
By Nam Hyun-woo
Park Sung-jin, 32, drives about 70 kilometers a day, commuting between his home in Yeongdeungpo-gu, Seoul, and his company in Pangyo in Seongnam, Gyeonggi Province.
Since the gasoline prices near his home are quite expensive, he uses a gas station on the Seoul-Busan Expressway because it is about 50 won cheaper, but in July he found that the price there was the same as at a gas station near his home.
"It costs about 100,000 won ($90) to fill up my tank and I do this between two and three times a month," Park said. "The recent gasoline price hike is a burden for me."
As Park said, oil prices here have been soaring recently and are expected to weigh heavily on households in the near future, as the United States' sanctions on Iran will likely affect domestic prices in the near future.
According to Korea National Oil Corp., Thursday, the average gasoline price at gas stations across the country was 1,614 won per liter in the first week of August, up 1.7 won from a week earlier. The price of diesel also rose to 1,414.9 won per liter, up 1.6 won during the same period.
In Seoul, where gasoline prices are the highest, the average price was 1,698.6 won per liter in the first week of August, 84.6 won higher than the national average.
Weekly prices have been rising so far this year. In January, the average gasoline price was 1,551.76 won, but quickly rose to 1,580.3 won in May, 1,609.1 won in June and 1,610.9 won last month.
For Park, who drives around 20,000 kilometers a year, his yearly gasoline cost increased by about 230,000 won from January to the first week of August.
And such a burden will likely spike as international oil prices rally after the first round of renewed U.S. sanctions on Iran entered into effect Tuesday. Three months later, the U.S. is slated to launch the next round of sanctions, which will virtually mean a ban here on importing Iranian oil.
In Korea, two refiners ― SK Innovation and Hyundai Oilbank ― have been importing Iranian oil.
Since Iran's 2015 agreement on a long-term deal to halt its nuclear program, the two refiners and a number of domestic petrochemical companies expanded imports, bringing in 147.87 million barrels of Iranian oil, or 13.2 percent of total oil imports.
Amid the U.S.-Iran diplomatic friction, however, the companies have been cutting imports so far this year, with Iranian oil accounting for 5.6 percent of the total in May, according to the National Oil Corp.
"We don't expect the fallout to be massive because domestic refiners have already diversified their importing sources and lowered their reliance on Iranian oil," an official at a domestic refiner said. "However, the oil embargo will bring price increases in the long-term, meaning retail prices could also be affected."
Hyundai Research Institute research fellow Hong Joon-pyo said the global oil price surge will also bring inflation to domestic consumer prices.
"If the global oil price rises 1 percent to 5 percent monthly in the second half of the year, domestic consumer price will rise about 0.1 percentage points to 0.4 percentage points, which adds significant pressure to inflation," Hong said.