Gov't to watch energy supplies as Ukraine jitters grow

Economy

Published: 23 Feb. 2022, 17:39 Updated: 23 Feb. 2022, 17:42

Gov't to watch energy supplies as Ukraine jitters grow

News report of Russia-Ukraine conflict appears on a TV at Seoul station on Tuesday. [YONHAP]

As the crisis in Ukraine builds, the government vowed to focus on securing energy supplies, including crude oil, gas and coal.

“We will release government stockpiles of oil and import from other countries if there is a problem [with supplies],” said Lee Eog-weon, Vice Finance Minister on Wednesday.

Lee added that the government plans to diversify its sources of imported grain and other raw materials, cut red tape and lower interest rates on loans from state-owned financial institutions to help industries buffeted by the crisis.

The Korean stock market, which has felt the jitters as tensions rose in Ukraine, stabilized Wednesday. The main Kospi index closed up nearly half a percent, adding 12.74 points.

“Investors are gradually adapting to the Ukraine situation,” said Mirae Asset Securities analyst Park Kwang-nam.

Outside Korea, the Shanghai market closed 0.88 percent higher Wednesday while Hong Kong's Hang Seng Index was up 0.6 percent.

Tokyo, however, continued to slide, closing 1.71 percent lower than Tuesday.

Vice Finance Minister Lee noted Wednesday that the direct hit from Russia and Ukraine on Korea’s trade and finances will be limited.

According to the Korea International Trade Association, exports to Russia account for 1.5 percent of Korea’s overall exports. In 2021, they were roughly $9.9 billion.

Imports only account for 2.8 percent of total imports, and were $17.3 billion in 2021.

Trade with Ukraine is far smaller: 0.09 percent of Korea’s total exports and 0.05 percent of its imports.

But rises in global energy prices could hit Korea’s economy, especially when inflationary pressure is already high.

Korea is the fifth largest oil importer in the world, importing 960 million barrels last year. Crude prices today are above $90 per barrel, the highest level in 14 years.

Dubai crude, Korea's main import, was traded at $96.01 per barrel on Tuesday, $4.28 more or 4.4 percent than the previous day.

Russia is the world's second largest oil producer after the U.S. The third is Saudi Arabia.

In the last four consecutive months, Korea’s consumer prices have been growing at their fastest pace in a decade due to sharp rises in energy prices.

The price of gasoline, which fell to 1,600 won per liter in early January, was 1,742.49 won on Wednesday, a 9 percent rise and the highest since November.

The pump price would be higher if not for the government’s fuel tax cut in November.

That tax cut comes to an end at the end of April.

Finance Minister Hong Nam-ki, left, visits the Korea National Oil Corp.’s oil storage facility in Ulsan on Wednesday. [MINISTRY OF ECONOMY AND FINANCE]

According to the government, Korea currently has sufficient stocks of oil.

In November, Korea imported 80.4 million barrels and in December 86.9 million barrels.

In January, nearly 95 million barrels were imported.

The government has reserves of 97 million barrels, which it says could last the country for 106 days.

“Even if there is a disruption in imports of Russian crude, we are prepared as we could immediately activate alternative import sources,” said Finance Minister Hong Nam-ki on Wednesday.

Oil imported from Russia only accounts for 5.6 percent of Korea's supplies.

The local oil industry agrees that the situation in Ukraine is unlikely to cause a major problem in the immediate future.

“For now we won’t have problems with supply as the amount imported from Russia is usually secured two to three months earlier,” said an industry official. “However, if the situation goes on, it could be a problem.”

BY LEE HO-JEONG, JIN EUN-SOO [lee.hojeong@joongang.co.kr]