Sri Lanka is once again grappling with fuel shortages and economic strain, this time triggered by the ongoing war between the United States, Israel, and Iran. For many Sri Lankans. The situation carries painful memories of the 2022 economic crisis, but with a new twist; In the hill city of Kandy, Keerthi Rathna, a 65-year-old tuk-tuk driver, waited in a long queue to buy his weekly fuel ration. The government now allocates 20 litres of petrol per week for tuk-tuks, a stark contrast to the days when Rathna could buy as much as he needed. This change. He said. Is due to the war on Iran, which has disrupted global oil traffic through the Strait of Hormuz.

Strait of Hormuz and Fuel Rationing

Sri Lanka imports 60 percent of its energy needs, most of which passes through the Strait of Hormuz; the war has caused Iran to halt most traffic through the strait, through which 20 percent of the world’s oil and gas passes. With no storage capacity beyond one month’s consumption, Sri Lanka introduced a QR-based fuel rationing system similar to the one used during the 2022 crisis. Motorbikes are allowed 8 litres of petrol per week, tuk-tuks 20 litres, cars 25 litres, buses 100 litres of diesel, and lorries 200 litres of diesel.

Despite the rationing. Fuel prices have risen by about 33 percent since the start of the war, while the impact is not limited to fuel; fertilizers, which are critical for agriculture, are also affected. Almost half of the world’s urea passes through the Strait of Hormuz. Researchers at the Kiel Institute for the World Economy estimate that Sri Lanka could see a 15 percent overall increase in food prices as a result. For a country already struggling with food security, this could be devastating.

Echoes of the 2022 Crisis

The current crisis has echoes of the 2022 economic collapse, which was largely attributed to the government under former President Gotabaya Rajapaksa. The government was accused of driving the economy into a state of collapse by adopting policies that led to a foreign exchange shortage and a default on foreign debts. The crisis forced Sri Lanka to restrict fuel imports, leading to soaring prices of essentials — Rajapaksa eventually fled the country after a youth-led uprising against him in July 2022.

Rathna noted that this time, the blame cannot be placed on the current government, as the war on Iran is not in Sri Lanka’s hands. The country has a new left-leaning government under President Anura Dissanayake, which faces its own set of challenges as the war in the Middle East continues. However, the economic impact remains severe, with no relief in sight for the average citizen.

Nalinda Jayatissa, a Sri Lankan minister and cabinet spokesperson, has said that bus fares have increased by more than 12 percent due to fuel price hikes, but they would be lowered if fuel costs drop. However, this offer brings little comfort to many Sri Lankans, whose incomes have not increased despite the rising cost of living. Political economist Shiran Illanperuma from the Tricontinental: Institute for Social Research warned that the fuel crisis will have drastic consequences for Sri Lanka.

Fuel Subsidies and Economic Losses

Despite the fuel price hike, the Sri Lankan government is losing $63 million monthly, according to Jayatissa. An official from the Ministry of Energy, speaking anonymously, explained that the government is effectively subsidizing fuel for its citizens by absorbing the increased cost. This decision is not purely a social welfare measure; it is also a strategic one to avoid crippling the economy if the full price hike were reflected at petrol stations. The official warned that if transport systems were to collapse, it could lead to insufficiency and unproductivity in industries.

To mitigate fuel consumption, Sri Lanka has introduced a no-work-on-Wednesday policy, closing government offices and schools. This measure aims to reduce fuel usage in the short term. In addition, the government is exploring alternative fuel sources, including negotiations with Russia to buy fuel after the US relaxed some sanctions on Russian fuel. Russia’s Deputy Energy Minister Roman Marshavin visited Sri Lanka this week to discuss potential deals.

However, the government has declined an offer from Iran to supply fuel, citing a lack of ships to transport it. The state-owned Litro Gas, which controls the largest share of the LPG market, has only 8,000 metric tonnes of storage capacity, while the national consumption is approximately 33,000 metric tonnes per month. Orders have been placed, and stocks are expected to arrive in the Maldives before being transported to Sri Lanka via small vessels.

LPG vendor Mohamed Sahir noted that the shortage is partly due to panic buying. He said he used to receive 50 LPG cylinders but now only gets 35. LPG prices have risen by about 8 percent since the start of the war on Iran. Illanperuma emphasized that in the short term, the government has limited options other than rationing, limiting consumption, and declaring holidays. In the medium term, he suggested that Sri Lanka should focus on building storage capacities, as it currently has no sufficient storage facilities to stock fuel for long-term consumption.

Sri Lanka stores fuel in three facilities across the country, but the capacity is limited to one month’s consumption. President Dissanayake announced plans to build eight more facilities, which would hold an additional week’s worth of fuel. The country has also entered into an agreement with India and the United Arab Emirates to renovate a colonial-era fuel storage farm in Trincomalee.

Illanperuma warned that if the traffic halt in the Strait of Hormuz continues, it will impact Sri Lanka’s food security. The country imports fertilizers from China, and its main ingredient, sulphur, comes from the Middle East. If China fails to source sulphur, Sri Lanka will be in trouble. Rathna, the tuk-tuk driver, noted the irony of the situation. During the 2022 crisis, fuel ships were anchored around the country, but the government had no money to buy them. Now, he said, the country has fuel ships but lacks the funds to buy them.