Sri Lanka hikes fuel prices amid Israel-Iran war:Petrol now at 398 rupees; diesel at 382 rupees per litre

Amid a crude oil supply crisis, the Sri Lankan government has increased petrol and diesel prices by up to 25%. After the hike on March 22, the price of regular petrol in Sri Lanka has risen by 81 Sri Lankan rupees to 398 rupees per litre. Meanwhile, diesel has become 79 rupees costlier, reaching 382 rupees per litre. This is the second time in the past two weeks that fuel prices have been increased. Last week, prices were raised by 8%. As the situation worsens, President Anura Kumara Dissanayake has implemented a ‘4-day working week’ (only four working days a week) in the country and asked companies to return to a work-from-home mode. Instructions for work-from-home to save fuel An official from the Ceylon Petroleum Corporation (CPC) said that the purpose of this sharp price hike is to reduce fuel consumption in the country by 15–20%. Anura Kumara Dissanayake had already ordered government and private offices to work only four days a week starting last Wednesday. Along with this, companies have been asked to allow employees to work from home wherever possible, so that fewer vehicles come out on the roads and fuel can be saved. Supply chain disrupted due to closure of the Strait of Hormuz The biggest reason behind Sri Lanka’s current difficulty is the ongoing war in the Middle East between Iran, the United States and Israel. As the war enters its fourth week, Iran has effectively closed the Strait of Hormuz. This is the same sea route through which about 20% of the world’s total oil exports pass during normal times. Sri Lanka imports all the oil it needs and also imports coal for electricity generation, so the disruption in supply has raised fears that the country’s fuel stocks could run out. Fears of a 2022-like default are rising again The Sri Lankan government has warned that if the war in the Middle East drags on, it will become difficult for the country to recover from the 2022 economic crisis. In 2022, after its foreign exchange reserves were depleted, Sri Lanka declared a sovereign default on its $46 billion foreign debt. However, the situation later improved slightly after the country received a $2.9 billion bailout package from the International Monetary Fund. Now, the ongoing war has once again dampened hopes of economic recovery. Oil imports come from Singapore and Malaysia Sri Lanka imports crude oil for its refinery from the Middle East, while it depends on Singapore, Malaysia and South Korea for refined petroleum products. The country’s only refinery, built by Iran, is also facing a shortage of crude oil. The government had already started fuel rationing last week to preserve stocks for essential services.