South Korea is shifting to a crisis response state as the risk of energy supply disruptions from the Middle East increases and oil prices continue to rise.
South Korean Prime Minister Kim Min Seok said the government needs to strengthen the proactive response system across all agencies, and prepare for the worst-case scenarios if the situation prolongs. He emphasized that the government will act urgently commensurate with the severity of the current developments.
The South Korean government is expected to establish an emergency economic task force headed by the Prime Minister, operating under the inter-ministerial coordination model as a unified group. This group will meet twice a week to coordinate responses, while a separate emergency economic situation room will also be established at the presidential office.
In parallel with that, Mr. Kim Min Seok called for the quick passage of the supplementary budget, emphasizing that this is a necessary requirement to protect the economy from risks. The government and the ruling party have agreed to build a budget package of about 25 trillion won (about 439 trillion VND), funded from over-the-counter tax revenue instead of issuing new bonds.
This support package is expected to focus on reducing the impact of rising energy costs, supporting vulnerable households and stabilizing the supply chain. Detailed plans will be announced after President Lee Jae Myung requests drafting in a short time.
Previously, Seoul had implemented emergency measures, including a fuel price ceiling for the first time in nearly three decades to control inflationary pressure due to sharp increases in oil and gas prices.
Economic experts believe that the stimulus package may support growth at a limited level but also potentially increase inflation in the context of volatile markets. It is estimated that this budget package is equivalent to about 0.88% of GDP and may help increase growth by 0.18 to 0.35 percentage points in four quarters.
Without intervention measures, wholesale gasoline prices could increase sharply, to about 2,050 won (more than 36,000 VND) per liter by the end of the month from about 1,723 won (more than 30,000 VND) previously. The government is said to be considering cutting fuel taxes to reduce the shock.
South Korea imports about 70% of crude oil from the Middle East, making the economy vulnerable to prolonged disruptions. This situation can spread to industrial raw materials such as naphtha and urea, increasing production costs, putting pressure on exports and domestic demand.
