Korea imposes naphtha export ban, sets second-round price cap on gasoline in face of energy disruptions

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Korea imposes naphtha export ban, sets second-round price cap on gasoline in face of energy disruptions

Published: 27 Mar. 2026, 00:00

SARAH CHEA
[email protected]

Audio report: written by reporters, read by AI

President Lee Jae Myung, third from left, conducts an on-site inspection at a strategic oil reserve facility operated by Korea National Oil Corporation in Seosan, South Chungcheong, on March 26. [NEWS1]

Korea is imposing a five-month ban on naphtha exports beginning at 12 a.m. Friday, in a bid to cushion energy disruptions stemming from the Iran war.

To rein in surging fuel costs, the government set a second-round price cap at 1,934 won ($1.3) per liter for gasoline and 1,923 won per liter for diesel — levels officials say could shave as much as 500 won off prices compared with an unregulated market.

Korea is currently mulling over raising the national resource crisis alert to “serious” — the third-highest level of the four-tier system — and is preparing to release 22.46 million barrels of strategic reserves in line with International Energy Agency agreements.

Fuel tax cuts will be extended through the end of May, while the ban on hoarding and the sales refusals for urea and diesel exhaust fluid will begin on Friday.

The measures were unveiled on Thursday at an emergency economic review meeting chaired by President Lee Jae Myung, as the prolonged war in the Middle East has effectively choked the Strait of Hormuz, disrupting flows of crude oil, liquefied natural gas (LNG) and other critical materials.

A trash bag vending machine remains almost empty in downtown Seoul on March 26 as the prolonged Middle East crisis strains supplies of petrochemical feedstocks such as naphtha, which is a critical material in making vinyl and plastics. [NEWS1]

Naphtha export ban: Efficacy in doubt
Starting Friday, all naphtha exports will be restricted, with shipments permitted only in exceptional cases upon approval from the industry minister.

Refiners and downstream petrochemical firms will be required to submit daily reports detailing production, imports, usage, sales and inventories.

Often dubbed the “rice of industry,” naphtha is a critical feedstock for petrochemicals used in semiconductors, automobiles and a wide array of manufacturing supply chains. Korea relies on imports for roughly 45 percent of its naphtha demand, with 77 percent of those imports sourced from the Middle East.

Affected by naphtha supply constraints, LG Chem has already halted operations at its No. 2 naphtha cracking center (NCC) in Yeosu, a facility capable of producing 800,000 tons of ethylene annually. Yeochun NCC has also suspended olefin conversion processes to recalibrate output.

As a key input for plastics and vinyl, naphtha disruptions have already triggered early signs of panic buying, including stockpiling of trash bags.

Yet the policy’s impact remains uncertain as naphtha exports account for less than 10 percent of domestic refiners’ output, raising questions about how much relief the curbs can deliver.

SK Innovation supplies nearly all of its naphtha to its affiliate SK geo centric, while HD Hyundai Oilbank similarly directs substantial volumes to Hyundai Chemical for domestic use.

“From March 1 to 20, naphtha exports accounted for 11 percent of domestic total production,” said Yang Ki-wook, director-general of the Office of Industry, Trade and Resource Security at the Ministry of Trade, Industry and Resources on Thursday during a press briefing.

“Export restrictions alone will not fully resolve domestic shortages. But every incremental volume matters, and redirecting supply to petrochemical firms will provide meaningful support.”

Separately, the government set a second fuel price cap at 1,934 won per liter for gasoline and 1,923 won for diesel, aiming to shield households from runaway energy costs. The measure takes effect at 12 a.m. Friday and remain in place for two weeks.

“Frontline gas stations must fully cooperate with the second price cap on refinery supply prices taking effect tomorrow,” President Lee Jae Myung said at the meeting. “As a supplementary budget plan tied to the war response set for release next week, the priority now is flawless execution.”

Cars flock to gas stations in southern Seoul on March 26, a day ahead of the government’s second announcement of a fuel price cap. [NEWS1]

Fuel tax cuts deepened through May
The government will expand fuel tax cuts from March 27 through May 31, raising the reduction rate on gasoline from 7 percent to 15 percent and on diesel from 10 percent to 15 percent.

The deeper cuts will widen price relief by 65 won per liter for gasoline, and 87 won per liter for diesel, compared to current levels.

Separately, a ban on hoarding and sales refusals of urea and diesel exhaust fluid will take place starting Friday, and importers, producers and distributors who stockpile excessive volumes beyond typical levels for more than seven days or deliberately withhold sales will face penalties.

Violations may trigger corrective orders, up to three years in prison or fines of up to 100 million won. The government will launch a reporting center and step up inspections through joint task forces.

The directive is intended to pre-empt a repeat of the 2021 supply shock, when China’s export restrictions triggered a nationwide shortage of urea solution.

The Ministry of Climate, Energy and Environment said the supplies remain stable as of now, as combined public and private inventories of automotive urea solution are sufficient to last more than 2.8 months, with an additional 6,000 tons of urea scheduled for import by April.

Petrochemical facilities are seen at the Yeosu Industrial Complex in South Jeolla on March 26. [YONHAP]

Nuclear boost, LNG swap
Korea will also move to stabilize energy supply by ramping up nuclear utilization, lifting the current operating rate from around 70 percent to above 80 percent.

While only 16 out of the country’s 26 reactors are operational as of now, Korea plans to restart five additional units now under maintenance by early June.

Seoul is also pursuing LNG swap arrangements with neighboring countries, including Japan, allowing cargoes to be borrowed and repaid depending on regional supply conditions.

The effort follows an Iranian missile strike on Ras Laffan, Qatar’s key LNG production hub, that damaged roughly 17 percent of the country’s export capacity, with full restoration expected to take up to five years.

Qatar accounts for about 14 percent of Korea’s LNG consumption.

Korea Gas Corp. said Thursday it will redirect all equity LNG volumes scheduled for production this year from projects in Australia and Canada to domestic use, which totals 1.06 million tons per year.

Through a 10 percent stake in the Prelude project in Australia, the company secures 360,000 tons of LNG per year, while its 5 percent stake in the LNG Canada project yields about 700,000 tons annually.

Combined, the 1.06 million tons equate to roughly 11 LNG carriers. Each vessel typically holds 75,000 to 78,000 tons, about a day’s worth of Korea’s summer LNG demand.

BY SARAH CHEA [[email protected]]