Mongolia just made a historic breakthrough by signing a deal to buy oil products from South Korea.
Successful negotiations between Mongolian Minister of Industry and Mineral Resources Damdinnyam Gongor and South Korea’s Ministry of Trade, Industry, and Energy have resulted in an unprecedented agreement that will completely change the rules of the game in the domestic fuel market.
For Ulaanbaatar, it’s a powerful strategic move toward energy independence. Currently, Russia supplies over 90 percent of Mongolia’s refined petroleum products, with the rest purchased from China.
According to the agreement reached on July 30, Seoul will supply Mongolia with 50,000 tons of high-quality petroleum products monthly: 10,000 tons of jet fuel, 20,000 tons of AI-92 gasoline (covering over 33 percent of the country’s total monthly demand), and 20,000 tons of diesel fuel (about 20 percent of the monthly requirement for Mongolia’s logistics and agricultural sector).
The fuel agreement follows South Korean President Lee Jae-myung’s state visit to Mongolia from July 9-11, which saw the two sides proclaim “a ‘New Golden Era’ of Mongolia-Korea relations.” Lee’s visit resulted in a bevy of agreements, including near-finalization of a Comprehensive Economic Partnership Agreement (CEPA) that will see tariff reductions. Trade and investment were major themes, in keeping with Mongolia’s broader push to diversify its economy away from a reliance on Russia and China.
Now the fuel purchase joins the 21 cooperation agreements signed during Lee’s visit.
Why did this happen now?
Mongolia’s fuel supply has been under new pressure, both because of global supply chain difficulties stemming from disruptions to the Strait of Hormuz and because of Russia’s tightening fuel supply. Mongolia is nearly totally reliant on Russian fuel imports, but Russia itself is facing shortages amid Ukrainian drone strikes on petroleum refining facilities. The crisis has forced Russia to request fuel from neighboring Kazakhstan, according to Reuters, along with banning exports of diesel. Other countries reliant on Russia for fuel imports, including Kyrgyzstan and Tajikistan, have had to implement emergency fuel management measures.
At the same time, the summer season, peak tourism, and large-scale agricultural work have increased fuel demand within Mongolia by two to three times. To avoid shortages and severe dependence on traditional suppliers, the Mongolian government is rapidly diversifying its imports. In parallel with the South Korean contract, Mongolia has already secured an emergency supply of another 6,000 tons of gasoline from China.
Authorities are resolute that there will be no shortage, and the domestic market will receive a reliable safety net of high-quality fuel. And with the new agreement, South Korea is becoming a key guarantor of stability for Mongolian gas stations and aviation.