Sri Lanka’s government raised fuel prices by 25 percent on Sunday, marking the second increase in as many weeks, as the island nation braces for escalating economic fallout from the ongoing conflict in the Middle East.
The price of 92 octane petrol rose to 398 Sri Lankan rupees (approximately $1.30 USD) per litre, a significant jump from the previous price of 317 rupees. Diesel, crucial for public transportation and freight, increased by 79 rupees to 382 rupees per litre. The Ceylon Petroleum Corporation (CPC) anticipates the price hikes will lead to a 15 to 20 percent reduction in fuel consumption, according to an official who spoke on condition of anonymity.
The latest increases follow a government order last week that implemented an eight percent rise in retail fuel prices alongside rationing measures designed to curb demand. President Anura Kumara Dissanayake, according to the CPC official, has instructed officials to prepare for a protracted conflict in the Middle East and its potential disruption of Sri Lanka’s energy supplies.
In a move to conserve fuel, President Dissanayake last Wednesday mandated a four-day working week and encouraged employers to reinstate work-from-home arrangements wherever feasible. These measures reflect growing concerns about the potential for wider regional instability to exacerbate Sri Lanka’s existing economic vulnerabilities.
The crisis is being driven, in part, by the effective closure of the Strait of Hormuz, a vital shipping lane for global oil supplies. Iran’s actions following the conflict with the US and Israel, now entering its fourth week, have severely restricted passage through the strait, through which approximately 20 percent of the world’s oil exports typically flow.
Sri Lanka is entirely dependent on imported oil to meet its energy needs, and likewise relies on coal imports for electricity generation. The country sources refined petroleum products from Singapore, Malaysia, and South Korea, while its crude oil supply for the Iran-built refinery originates in the Middle East.
Colombo has warned that a prolonged war in the Middle East could severely jeopardize its economic recovery. Sri Lanka defaulted on its $46 billion in foreign debt in 2022, triggering a severe economic crisis. The nation is currently under a $2.9 billion bailout program from the International Monetary Fund, a lifeline that could be threatened by further economic shocks.
