The United States and Iran agreed to sign a memorandum of understanding (MOU) to end the war, but the government is likely to maintain the "oil price cap" for the time being. Instead, the government is focusing on preparing a notice, to be released this week, that will set criteria for compensating refiners for losses.
According to the government and the refining industry on the 16th, the Ministry of Trade, Industry and Resources plans to release on the 18th a notice outlining criteria for compensating refiners for losses incurred under the oil price cap. The Ministry of Trade, Industry and Resources will also release the seventh oil price cap the same day. The seventh oil price cap will be noticed on the 18th and applied from 12:00 a.m. on the 19th. However, according to officials in and outside the government, it is unlikely to include an end to the oil price cap.
After the Strait of Hormuz was closed due to the war among the United States, Israel and Iran and international oil prices surged, the government implemented the oil price cap on Mar. 13 to stabilize domestic fuel prices. The oil price cap set by the government is the maximum amount refiners can charge gas stations. The aim is to curb the rapid pass-through of surging international oil prices to domestic fuel prices.
Minister Kim Jung-kwan of the Ministry of Trade, Industry and Resources said at a press briefing on the 27th of last month that conditions for ending the oil price cap include the end of the war between the United States and Iran, normalization of the Strait of Hormuz, and international oil prices entering the $90 range. By that measure, international oil prices fell into the $80 range after the 12th, and the war between the United States and Iran is likely to end soon.
However, to stabilize domestic fuel prices, the government is prioritizing supply-demand stabilization in addition to an end to the war and lower international oil prices. A senior official at the Ministry of Trade, Industry and Resources said, "International oil prices rise and fall with market expectations, so the key is whether crude supply stabilizes," adding, "To be precise, the war has not ended yet, there are said to be mines laid in the Strait of Hormuz, and Iran is saying it will exercise control, so we need to watch the transit situation in the Strait of Hormuz a bit longer." The official added, "The Strait of Hormuz must normalize for crude supply to flow smoothly."
In fact, the United States and Iran have only agreed to sign an MOU to end the war. The two sides will hold an official signing ceremony in Switzerland on the 19th. After the MOU is signed, the two countries plan to begin final negotiations over 60 days covering nuclear issues and the lifting of sanctions on Iran.
Above all, even if the war ends and the Strait of Hormuz reopens, it will take at least four months for crude supply to recover to previous levels. According to the Financial Times (FT), Sultan Ahmed Al Jaber, chair of Abu Dhabi National Oil Company (ADNOC), said in May, "It will take at least four months for crude supply to recover to 80% of the pre-war level," adding, "Full supply will not return until the first or second quarter of 2027."
Rather than ending the oil price cap, the government is focusing on establishing a notice that sets criteria for compensating refiners for losses incurred under the cap. When implementing the oil price cap, the government decided to compensate losses on a quarterly basis. The notice to be released this week is expected to include methods for calculating losses, compensation procedures, settlement timing, and standards for submitting supporting documents.
A refining industry official said, "The notice to be released this week will likely include only the criteria for loss compensation," adding, "Because each refiner's process differs, the settlement committee will need to convene only after the government receives the relevant documents, and that is when views will emerge on how to specifically calculate the losses."