Sri Lanka alarmed over potential global fuel price surge over tension in the Middle East

The global fuel prices are slated to increase to US $ 100 a barrel in case current tension in the Middle East continues further, and it has rung alarm bell for the government which is bound to adjust local prices according to spikes in the global market in conformity with the IMF programme, according to an informed source.   

Tension increased after the killings of Hamas leader Ismail Haniyeh and one of Hezbollah’s most senior commanders in Israeli airstrikes. Afterwards, the price of Brent Crude rose by US $ 1.50 to US $ 80.13 a barrel on July 31 from a three-week low. According to global forecasts, the price is slated to increase to US $ 100 a barrel if tension escalates.   

A government source said fuel accounts for one-fourth of the import basket of Sri Lanka. During the first five months of this year, the fuel import bill stood at US $ 1.8 billion out of a total of US $ 7.2 billion in imports.   

The government is concerned about a possible surge in fuel prices since it is required to adjust prices locally to reflect cost recovery according to the IMF Extended Fund Facility. Higher energy process will lead to inflation, eroding the purchasing power of people.   

Currently, Sri Lanka has contained year-on-year inflation but the elevated price levels remain high.  

Also, the escalation of tension will have an impact on the country’s exports; 10 per cent of merchandise exports went to the Middle East in 2023. Sri Lanka particularly exports tea to this region. Tension will also have an impact on the tourism industry of Sri Lanka. Earnings from tourism amounted to US $ 1.6 billion during the first half of this year.   

Besides, a large number of Sri Lankans work in the region and a crisis situation affects their livelihoods, resulting in low remittances to the country.