Lee Jae-myung's Oil Price Cap Stimulates Stock Market, Taiwan Lowers Raw Material Taxes

Lee Jae-myung's Oil Price Cap Stimulates Stock Market, Taiwan Lowers Raw Material Taxes

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While President Lee Jae-myung, the only president in the global single oil market system, has strengthened stock market support through direct market intervention, guaranteeing the maintenance of domestic tax increases through price caps on consumption, Taiwan has shown a clear gap with its "raw material tax cuts."

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The Lee Jae-myung administration, closely aligned with the Trump administration, which strengthened its oil-dependent economy, has rapidly shifted away from the alternative energy policies of its predecessor, the Biden administration, and has restructured itself into the US Republican Party's "oil-dependent industrial system." This has led to the restoration of the chaebol economic system, reinforcing the "KOSPI 5000" strategy for rapid, short-term stock market revitalization. Following the US in the oil crisis, President Lee has decided to directly intervene in the fuel market to curtail supply in oil-intensive countries with 40% of the industrialized countries, emulating the Trump administration. He has also called for price caps on gasoline and diesel in the domestic market and ordered authorities to crack down on hoarding, collusion, and price manipulation by refiners and gas stations.

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Meanwhile, Taiwan, which imports more than 96% of its energy and receives about 60% of its oil through the Strait, signed contracts for 20 ships to secure supplies before they run out and announced a "raw material tax cut" to address rising oil prices for consumers and industry.

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The New York Times reported on the 9th that regarding the Lee Jae-myung administration's measures, "Price caps typically apply at gas stations, limiting what gas stations can charge drivers amid soaring global crude oil prices. However, such measures can shift fiscal pressure elsewhere." The Times added, "Taiwan raised gasoline and diesel prices on the 9th, but also announced a simultaneous raw material tax cut to mitigate the impact on consumers and industry."

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The Times reported that "Kim Yong-beom, the president's chief policy coordinator, said the South Korean government has not yet announced how it will compensate suppliers for losses resulting from the price caps, the first introduced since the 1997 Asian financial crisis."

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"Accessing oil reserves is easier said than done," said June Goh, an oil market analyst at Singapore-based commodities data firm Sparta. Regarding South Korea's price caps, he told the New York Times, "If the government caps retail prices but doesn't subsidize them, the cost falls on the refiners."

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He continued, "Forcing refiners to absorb the difference in a rapidly rising crude oil price is uneconomical and not a 'feasible solution in the short or medium term.'"

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"Reserves may not be readily available for withdrawal, and it will be difficult to supply fuel to refineries before existing inventories are depleted."

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The United States is the world's largest oil producer and net exporter, yet oil trades most strongly in the global market at a single price.

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Dr. Rosemary Kalanick, director of the Middle East program at Defense Priorities, told the New York Times that experts liken the oil market to a giant bathtub with numerous faucets and drains. “The total concentration of oil in the bathtub, and market speculation about whether that concentration will rise or fall, determines the price of oil, even for countries like the United States that pour large amounts of crude into the bathtub.”

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Dr. Kalanick continued, “While all countries financing the bathtub experience oil price shocks, the United States suffers more than its peers. The U.S. economy is highly oil-intensive, consuming more oil per dollar of GDP and more than 40% more oil-intensive than China’s.” “China is a net oil importer, receiving much of its oil from Persian Gulf countries, including Iran. The European Union economy is about half as oil-intensive as the U.S. economy. Even oil-producing Russia relies about 20% less on oil per unit of economic output than the U.S.”

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Dr. Kalanick stated that as China advances its alternative energy industrialization, "the US oil intensity problem is expected to worsen compared to China." He added that the Trump administration ended electric vehicle subsidies, curbed investment in charging infrastructure, and weakened US fuel efficiency standards.

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The Lee Jae-myung administration, closely aligned with the Trump administration, rapidly shifted away from the alternative energy policies of the previous Biden administration and reorganized itself into the US Republican Party's "oil-dependent industrial system." It also restored the chaebol economic system, reinforcing the "KOSPI 5000" strategy of rapidly boosting the stock market. It followed the US into the oil crisis.

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The International Energy Agency (IEA) significantly lowered its projection for US electric vehicle adoption to 20% of new car sales by 2030, down from over 40% under the previous Biden administration.

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Dr. Kalanick stated, "In China, this proportion is expected to reach around 80%."

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Taiwan imports over 96% of its energy and receives approximately 60% of its oil through the Strait. The government used this as a strategy to secure supplies before the Iranian War depleted them. Minister of Economic Affairs Kong Ming-hsin officially announced on the 9th, "To make up for the shortfall by April, Taiwan needed to secure 22 natural gas ships, and contracts for 20 ships have already been signed." He added, "There will absolutely be no gas or power shortages."

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Qatar halted production last week, shortly after Iran attacked two gas facilities, and Taiwan receives about a quarter of its natural gas from Qatar.

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Few regions are as severely exposed to a decline in oil and gas supplies from the Middle East as Asia, which accounts for the majority of the region's energy imports.

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The Strait of Hormuz, a narrow waterway between Iran and Oman, separates the world's largest oil and natural gas producers from their customers.

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The New York Times reported, "Historically, about 20 million barrels pass through it daily, most of them bound for Asia." The dispute has effectively closed the Strait of Hormuz to maritime traffic, leaving governments scrambling to find solutions to limit fuel supply and prevent skyrocketing prices."

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Edward C. Chow, a former Chevron executive who led international diplomacy and managed operations in China, told the Times that there's "no substitute" for the strait. "The market is seeing a physical shortage of supply."

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"Sold Out" signs began appearing at gas stations throughout Hanoi, Vietnam, where the Times covered the area, along with South Korea, and about 15 to 20 stations have closed in recent days.

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The Vietnamese government attempted to reassure residents on the 9th that it has sufficient oil reserves for at least a month and advised residents not to stockpile gasoline or diesel, the Times reported.

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Hoang Van Thang, a 29-year-old motorbike taxi driver, told the New York Times he waited 30 minutes to fill up at a gas station in central Hanoi.

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Vietnamese citizens typically wait five minutes. "As fuel prices continue to rise, my gasoline spending has increased by about 20 percent in the past week," he told reporters. "Rising gasoline prices are eating into my daily income. Higher gasoline prices will drive up the price of everything from vegetables and meat to a bowl of pho."

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The Philippines is one of the most vulnerable countries in Asia to oil price shocks, with nearly 90 percent of its oil imports coming from the Middle East.

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The New York Times reported, "While neighboring countries like Indonesia and Thailand are partially protected by fuel subsidies, gas prices in the Philippines are market-driven." The situation is also dire in Bangladesh, where the new government announced on the 6th that it had ordered fuel rationing and university closures to conserve electricity and "reduce transportation demand."

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Bangladesh has faced pressure on its national budget in recent years to purchase gas for power generation, and most of its electricity is now generated by gas-fired power plants and relies on imports from the Gulf.

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The New York Times reported, "Bangladesh's new leaders, elected after protests last month overthrew the previous authoritarian government, are desperate to avoid the economic challenges their predecessors imposed."

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When asked by a New York Times reporter whether China had decided to mine its reserves, Chinese Foreign Ministry Spokesperson Guo Jiaqun said at a briefing on the 9th that China would "take necessary measures to protect its energy security."

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Japanese government officials have urged Japan to "prepare for the possibility of strategic reserves being released from domestic oil storage facilities." He gave instructions.

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Defense Minister Minoru Kihara (Lower House, Liberal Democratic Party) stated at a press conference, “No official decision has been made on drilling from the reserves.”

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Dr. Galanic, regarding the US role in the oil crisis, stated, “In the short term, the US government can reassure the market by releasing oil from the US Strategic Petroleum Reserve (ASP), which was created for such moments. The reserve currently holds approximately 415 million barrels, and deliveries can begin within two weeks.”

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The US ASP is a stabilizing mechanism during a global oil crisis, and indeed, all emergency withdrawals, including the 1991 Persian Gulf War, Hurricane Katrina, the NATO airstrikes on Libya, and the Russian invasion of Ukraine, have contributed to global market stability.

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Dr. Galanic stated, “The White House should have planned an emergency reduction in the ASP before launching a reckless war against Iran, especially considering that Secretary of State Marco Rubio admitted last week that he expected prices to spike during the conflict.” He added, “This delay is a significant step forward.” "This suggests that the Trump administration was initially overconfident that the war would end quickly before the oil market took notice," he said.

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The United States should coordinate oil reserve releases with members of the International Energy Agency (IEA), which hold a total of 1.2 billion barrels in government reserves.

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Global oil inventories, including government reserves and privately held oil, total 8.2 billion barrels, theoretically sufficient to cover a complete closure of the Strait of Hormuz for over a year. Dr. Gallagher said, "The current energy crisis is manageable with or without the US Navy's intervention in Hormuz, especially with government cooperation. President Trump's promise of US military intervention to protect Persian Gulf oil, as President Carter did, is a bad sign."

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During the global oil crisis, President Carter stated, "President Trump promised U.S. naval protection for ships transiting the strait if necessary. This is not a new idea; it is an extension of President Jimmy Carter's 1980 promise to defend the Persian Gulf following the 1979 Islamic Revolution." He added, "At the time, the Iranian Revolution and the Soviet invasion of Afghanistan combined to create a growing threat to global oil supplies. President Carter's increased U.S. presence in the region led to the creation of CENTCOM, establishing a permanent U.S. presence there."

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However, the long-term U.S. military presence failed to prevent Iran from attacking Persian Gulf shipping and discouraged investment in a more robust global oil transportation network, contributing to the current concerns about soaring oil prices.

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Amid the ongoing Iran crisis, President Trump has a better option than further reinforcing President Carter's approach: "Strengthening U.S. military protection" and reiterating America's unique vulnerability to oil price shocks. Accordingly, President Lee Jae-myung has adopted the 'consumer price ceiling system' as the only economic policy that prioritizes supporting the stock prices of conglomerate industries vulnerable to oil price shocks.