In Asia, Africa, and the Middle East, economies are bearing the brunt of the sharp rise in energy prices caused by the closure of the Strait of Hormuz and attacks on oil and gas facilities in the Persian Gulf.
John Power.
Source: Source: aljazeera.com
The emerging economies of Asia, Africa and the Middle East are the most vulnerable to a sharp rise in energy prices.
As the U.S. and Israel’s war on Iran wreaks havoc on the global economy, the poorest countries in the Global South are the most vulnerable to the consequences of this conflict.
In Asia, Africa and the Middle East, emerging economies are bearing the brunt of the sharp rise in energy prices caused by the closure of the Strait of Hormuz and attacks on oil and gas facilities across the Persian Gulf.
From Pakistan to Bangladesh and Sri Lanka, through Jordan, Egypt and Ethiopia — Politicians face a double whammy: they are heavily dependent on energy imports and have limited financial capacity to cushion the shock of price spikes.
In Pakistan, which imports about 80 percent of its energy from the Gulf states and has experienced a string of economic crises for years, the authorities are rushing to implement fuel-saving measures.
Faced with the country's gasoline and diesel reserves likely to be depleted within weeks, officials have closed schools, introduced a four-day work week for state agencies, ordered half of public sector employees to work from home and cut fuel limits for business trips.
Pakistani Prime Minister Shahbaz Sharif said last week he had made the decision to scrap planned increases in gasoline and diesel prices ahead of Eid al-Fitr celebrations, saying the government had «burden» rising costs.
Sharif's statement comes after the government earlier this month approved a price increase of 55 rupees ($0.20) per litre (0.26 gallons) of gasoline or diesel.
According to S. Akbar Zaidi, executive director of the Karachi Business Management Institute, government subsidies have helped soften the blow to the population, but there are fears that oil prices will soar and lead to a halt in economic activity if the war drags on.
«The overall shock is quite serious, although it has not yet fully transposed to consumers and industry.». — said Zaidi.
«I expect things to get worse in the next few weeks when the effects of disruptions and price factors are fully apparent.».
Bangladesh, which imports about 95 percent of its oil and is expected to run out of fuel in a matter of days, has run out of fuel at some refueling stations in counties despite the introduction of rationing.
Sri Lanka, which imports about 60 percent of its energy needs and is still recovering from the economic crisis that began in 2019, has declared every Wednesday a public holiday and introduced mandatory fuel cards for vehicle owners to save gasoline and diesel, which are projected to be depleted within weeks.
In Egypt, one of the largest energy importers and one of the Middle East’s most indebted economies, the government ordered the closure of shopping malls, shops and cafes by 21:00 on weekdays and by 22:00 on weekends, and cut street lighting.
Faced with mounting pressure on public finances due to heavy subsidies on fuel prices, Egyptian officials on March 10 announced a 15 to 22 percent hike in prices for gasoline, diesel and cooking gas.
Acknowledging the burden on the population, Egyptian President Abdel Fattah el-Sisi said the move was necessary to avoid it. «more severe and dangerous consequences».
«For most emerging economies, especially those already struggling with debt and heavy dependence on imports, this represents a powerful combination of inflation, currency pressure and financial hardship.». — said Yea Kim Leng, professor of economics at the Jeffrey Chi Institute for Southeast Asian Studies at Sanway University in Kuala Lumpur, Malaysia.
«Net energy and food importers are the most affected, especially those with fragile macroeconomic fundamentals and pre-existing vulnerabilities typical of low per capita income and high poverty.». — added Yea.
Pakistan, Bangladesh, Sri Lanka, Jordan, Senegal, Egypt, Angola, Ethiopia and Zambia are among the most vulnerable countries, according to a recent analysis by the Washington-based Center for Global Development, which took into account factors such as dependence on fuel imports, public debt levels and the ratio of foreign exchange reserves to imports.
Currency weakness
The weakening of many developing countries’ currencies against the US dollar — Investors’ purchase of US currency amid heightened geopolitical uncertainty — This made the situation worse, increasing costs even more.
«Countries like Indonesia and the Philippines had already hit record lows before the conflict, making imports, including oil, much more expensive.». — Azizul Amiludin, a non-resident senior fellow at the Malaysian Institute for Economic Research in Kuala Lumpur, said.
Just as the effects of war pose special problems for governments in developing countries, their impact on citizens is also disproportionate.
In less developed economies, citizens spend a much larger portion of their income on fuel and food, making them more vulnerable to the rising cost of living.
At the same time, governments in developing countries are less able to provide social protection for those at risk of being excluded.
«In vulnerable economies, governments often try to protect populations from price spikes by subsidizing fuel and food. — said Yea, a professor at the Jeffrey Chi Institute. — But when fiscal reserves are depleted and incomes are reduced, such policies become unsustainable. Subsequent austerity, combined with hyperinflation, could trigger widespread social unrest and a full-blown fiscal crisis.».
With little more than a month since the start of the U.S.-Israeli war and no clear timeline in sight, many analysts expect the situation to get worse before it gets better.
Khalid Walid, a researcher at the Institute for Sustainable Development Policy in Islamabad, said the rise in transportation costs would soon be felt at supermarket checkouts.
«Diesel is the backbone of Pakistan’s transport and agricultural economy». — said Walid.
«Freight costs have started to rise, and it will affect everything from flour to fertilizer in the coming weeks.».
Once Pakistan’s wheat harvest begins in April, food prices could soar well above current levels, Walid said.
«Grain harvesters, threshers, tractors for transportation from field to market and trucks delivering grain from fields to mills and warehouses, — They all run on high-speed diesel fuel.». — He said.
«For a country where wheat flour is the most significant item in the consumer basket of the bottom two quintiles by income, this is not just a secondary issue.». — Walid added.
«If diesel prices remain high in April and May, Pakistan will harvest wheat at the highest production costs in years, and these costs will directly translate into food inflation at a time when households have little room to absorb further price shocks.».
