The Korean government will extend the current tax cut imposed on fuel until the end of the year, the Finance Ministry announced Monday, considering the escalated volatility in international oil prices following the renewed Israel-Hamas conflict.

Fuel tax reductions -- namely a 25 percent cut for gasoline as well as 37 percent cuts for diesel and butane -- which were to end in October, will last two more months through the end of this year, the ministry said.

Finance Minister Choo Kyung-ho assessed the conflict between Israel and Hamas militants' direct impact on the Korean economy, energy supply and demand has been limited, though it could lead to fluctuations in international oil prices.

“The risk on energy and the supply chain can strengthen depending on how the Israel-Hamas crisis rolls out,” Choo said at a governmental meeting Monday. “We cannot rule out the possibility of facing difficulties again (due to the crisis) at a time when global inflation has been somewhat brought down.”

Though Korea has seen no major impact from the Israel-Hamas conflict on the country's imports of crude oil as Choo said, a surge in oil prices will be unavoidable if it develops into a geopolitical crisis for the wider Middle East region.

“The crisis could lead to a rise in international oil prices and lead to escalated volatility on the real economy and financial market, including the foreign exchange market,” Choo explained.

In response, Korea is to continue its scheme to tame inflation by bringing down the retail oil prices. The cut pulls down fuel prices by cutting a tax worth nearly 200 won (15 cents) per liter, depending on the fuel type.

With local retail oil prices yet to reflect the Israel-Hamas conflict, figures inched down last week after reaching a peak earlier this month. It is the first time in 14 weeks for retail fuel prices to show a downward trajectory.

According to Opinet, a website operated by the Korea National Oil Corp., the retail price of gasoline stood at an average of 1,788.3 won per liter in the second week of October, down 7.7 won from the week before.

The price of diesel was 1,693.3 won per liter, down 3.8 won from the week before. It has moved down to the 1,600 won range a week after surpassing 1,700 won for the first time in nine months.

The government will also extend subsidies for cargo truck drivers and others using diesel, natural gas vehicles.

The fuel tax cuts were implemented from November 2021 as volatile energy prices weighs pressure on the Korean economy, which is heavily dependent on energy imports.

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