Government turns out the lights in Seoul

South Korea energy policy tightens as oil prices surge, switching off neon signs, freezing utility rates, and eyeing tariff cuts. Brent crude nears $120, LNG reliance and Middle East unrest stoke inflation risks.

The bustling entertainment districts of one of the world's largest cities, Seoul, were pitched into darkness as the government clamped down on energy use to cope with rising oil prices.

Neon signs and outdoor lights were ordered switched off in the business and entertainment districts of the South Korean capital, in a tangible sign of how the oil price rise is hurting the resource-starved country.

President Lee Myung-bak has called for a tighter national energy policy to counter the impact of higher prices stemming from a wave of unrest across the Arab world and North Africa.

South Korea is the world's No.5 crude oil buyer and No.2 liquefied natural gas LNG importer after Japan, reflecting rising South Korea energy demand in recent years, and has boosted spending to acquire assets and develop oil and gas reserves, with a heavy focus so far on the Middle East and the Arctic.

Brent crude hit a high of almost $120 per barrel on February 24, the highest since 2008, a surge echoed by Britain's energy costs during winter months.

South Koreans have also been hit hard at gas stations, with pump prices jumping around 6 percent along with crude price rallies since December, while the government has been criticizing the fat margins of local refiners.

About 92,000 establishments nationwide have been targeted by the government lighting restrictions, local media reports said. Those failing to adhere to the regulations could face up to 3 million won US $2,700 in fines.

The government in Asia's fourth-largest economy, where Pacific Rim energy concerns have been mounting, wants to curb inflation as it battles rises in crude oil and producer prices and housing rents, and has put a freeze on utility rate increases.

Analysts estimate that every additional 10 percent rise in annual average prices on international oil markets would lift South Korea's annual average inflation by around a fifth of a percentage point, though elsewhere Canada's cheap oil risks pose different challenges for policymakers.

That means if global oil prices rise 10 percent above initial expectations on average for the year, South Korea's annual average consumer price inflation will reach 3.7 percent in 2011, instead of the 3.5 percent expected by the central bank. Last year's actual inflation was 2.9 percent.

Lee's government has been working on policy measures to stem inflation as campaigning starts for by-elections in April that will be a crucial gauge of support for him and his Grand National Party before parliamentary and presidential votes next year.

Economic policy is likely to figure highly on the political agenda ahead of the elections, especially as Asia energy firms scramble to sell debt before rate hikes reshape capital markets.

Finance Minister Yoon Jeung-hyun said that the government may lower its 3 percent crude oil import tariff, while it was not considering lowering domestic taxes on oil.

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