The government has decided to refund 100% of the increased freight cost difference when domestic crude importers such as refiners bring in crude from non-Middle East regions instead of the Middle East through June, but critics say the measure lacks effectiveness. They note that the share of Middle Eastern crude is so large and the benefit applies only to long-term contract volumes, leaving little to be refunded.
The refining industry also argues that extending the refund application period and providing tax credits for capital expenditures needed to install equipment suited to the properties of crude from non-Middle East regions are necessary for active diversification of crude import sources.
As of the 22nd, according to the refining industry, despite the implementation of the freight cost difference refund program, the benefits available to the four domestic refiners are limited. The refund program targets crude imported from regions farther than the Middle East, such as the Americas, Africa and Europe.
S-Oil, whose major shareholder is Saudi Aramco, imports more than 98% of its crude from the Middle East, effectively leaving no refund to claim. The Middle Eastern share for SK Energy and GS Caltex is in the mid- to high-70% range, and for HD Hyundai Oilbank it is around 60%.
In response, the refining industry hopes the refund will also apply to Middle Eastern crude brought in via the Red Sea, rather than the traditional Persian Gulf route, in a situation where the Strait of Hormuz is blocked. Since the Middle East crisis, all four domestic refiners have been using Saudi Arabia's Yanbu Port to bring in crude, utilizing the Red Sea.
The refining industry also expects the refund to apply to spot volumes, not just long-term contract volumes. According to the industry, as of 2024, 59% of the crude introduced by the four refiners is under long-term contracts and 41% is spot, indicating a high spot share. In particular, since the Strait of Hormuz was blocked, the four refiners have been securing spot volumes from non-Middle East regions to replace Middle Eastern long-term contract volumes.
The refining industry says the freight cost difference refund program should continue beyond June. On the assumption that a Middle East crisis could recur at any time, the refund policy needs to continue to increase the share of crude from other regions such as the Americas.
It takes 22 to 25 days to ship crude from the Middle East to Korea. But bringing in crude from the Americas takes more than 50 days, increasing transportation costs, and the associated insurance premiums also rise.
The refining industry also wants support because crude from the Americas differs in properties from Middle Eastern crude, requiring equipment changes. A refining industry official said, "Canadian and Mexican crude are heavy like Middle Eastern grades, but acidity and viscosity differ, so pipelines must be changed," adding, "In addition to freight support, measures that consider equipment characteristics are needed to speed up crude diversification."
An official at the Ministry of Trade, Industry and Resources said, "We are discussing various measures to diversify crude import sources," adding, "This step reflects addressing issues that can be resolved within the government's available resources."