Oil shock devastates poorer nations as shortages, protests mount

Developing nations are suffering the biggest hit from this year’s oil shock. Many are dependent on imported fuel and are being crushed by a combination of high international prices, weak currencies and competition from rich nations whose economies are rebounding from the pandemic.

Higher fuel bills are exacerbating inflation in countries that are already struggling with soaring food prices. The combination is leading to unrest and protests from citizens, which democratic governments know from experience is one of the surest ways to lose popularity and power.

Sri Lanka, Laos, Nigeria, and Argentina are among emerging economies in Asia, Africa and Latin America that have seen long queues at some filling stations in the past weeks because of fuel shortages.

Many governments are faced with the dilemma of either cushioning the blow of higher prices by increasing subsidies or lowering taxes — both of which hurt state finances — or allowing fuel prices to increase and risking the anger of consumers and businesses that can’t afford the extra cost.

Emerging unrest

“We could see a lot of unrest as emerging economies are more sensitive to fuel prices,” said Virendra Chauhan, Singapore-based head of Asia Pacific for consultancy Energy Aspects. “While historically most of these have relied on fuel subsidies to appease the populace, because of a large and burgeoning import burden, it may be difficult to maintain these subsidies.”

The crisis is mainly the result of the twin forces of recovering demand after the pandemic and sanctions on Russia over its invasion of Ukraine, which disrupted global flows of energy, especially to Europe. Global benchmark Brent crude traded around $120 a barrel on Tuesday — some 70 per cent higher than its average price in 2021 — after Saudi Arabia signaled confidence in demand and Goldman Sachs Group predicted tighter markets as China emerges from lockdowns.

Among the emerging economies bearing the brunt of higher prices are Sri Lanka and Pakistan. 

Mired in its biggest economic crisis, Sri Lanka is seeking help from the International Monetary Fund, China, Japan and India to pay for its fuel imports as domestic supplies run low. Airlines flying to the country have been told to carry enough jet fuel for the return trip or fill up elsewhere.

Surging inflation and fuel prices are pushing Pakistan into a similar economic crisis, with the country also seeking a bailout from the IMF. But the fund insisted the government raise fuel prices to secure an agreement. Meanwhile, foreign banks have stopped offering trade credit for oil imports. Pakistan is asking Qatar for additional cargoes of liquefied natural gas under its existing long-term contract as its fuel shortage continues, with rolling blackouts still taking place.