Weathering anti-Iran sanctions | Sunday Observer

Weathering anti-Iran sanctions

The growing disarray in world markets following the United States’ decision to unilaterally renew sanctions against Iran sets the backdrop for the Government’s new energy policy. Last week’s fuel price increase and the new flexible pricing protocol introduced by the energy authorities are a timely step by the Government as we suddenly enter a period of some global economic uncertainty, with serious impacts on smaller economies.

The signing of the Joint Comprehensive Plan of Action (JCPOA) between a group of dominant world powers and Iran in 2015, ended a massive and crippling sanctions regime that had long hurt Sri Lanka due to our loss of Iran as an important export market and reliable oil supplier. Following the lifting of that economic sanctions regime, Sri Lanka had been set to revive a mutually beneficial economic relationship with Iran that had once been a pillar of both our oil imports strategy as well as our tea export industry.

The stabilizing of the world’s energy supply market with the re-entry of Iran in 2015 had helped poorer countries like Sri Lanka in managing their energy resources better in their larger economic development drive. Not only had the world oil market continued with its post-Gulf War stability, but oil prices remained low, providing some relief for weaker economies and poorer societies. Our transport cost has remained fairly stable and, crucially, low. Consequently, public travel costs have remained affordable while the entire range of manufactured goods and food products have been less pressured by fuel costs.

Suddenly, all that is set to change. The re-introduction of a sanctions regime by the United States of America is already affecting world markets, given the US’ dominant role as the world’s biggest trader, biggest supplier of many key products and a key energy trader itself. World oil prices rose immediately following Tuesday’s announcement by the US of its withdrawal from the Iran nuclear arms control pact. Washington had already promised an even more drastic political and economic sanctions regime against Iran.

Following the US announcement of more sanctions against Iran, world oil prices jumped by nearly 4 per cent, the highest in nearly four years. With crude petroleum prices now averaging over US$ 70 per barrel after the US announcement, small economies like Sri Lanka face an inevitable pressure on its energy supply and consequent economic impacts.

All countries heavily dependent on imported energy now face this added challenge of higher oil and gas prices as well as market price volatility. Higher fuel prices can impact on domestic production costs in all major sectors: manufacturing, agriculture, transport, services. At the same time, energy cost volatility affects production planning and marketing stability. This is a disincentive to business expansion and investment. Equally importantly, this anti-Iran move could generate a worsening of political-military tensions in West Asia which could additionally affect the world economic environment.

In this light, the Government and the private sector needs to consult well and plan for the expected impact of this sudden geo-political development that hits the smaller and weaker countries more than the richer, bigger countries, as often such global power politics do.

While, clearly, the Government is pro-active in its management of the country’s energy supplies in the midst of this new global energy market upheaval, much more needs to be done to ensure that a fragile, but upwardly-mobile, Sri Lankan economy does not get bogged down by other possible impacts of new anti-Iran sanctions.

In the first place, Colombo is not directly entangled in this new geo-political development arising from an entirely unilateral action by a single country, albeit, the world’s most powerful state and a good, long-time friend of Sri Lanka. The US is one of Sri Lanka’s key trading partners and development donors while for long being a supporter of our country’s unity and democratic well-being.

Sri Lanka, in unison with the entire world community, hailed and supported the signing of the 2015 Iran nuclear pact as a major action favouring world peace and stability. Sri Lanka, even more so, welcomed the opportunity to renew its warm and close ties with Iran a regional neighbour and old, mutually supportive, partner in trade and development.

While the United States must exercise its right as a sovereign state, to conduct its global political strategy in accordance with its national policy, Sri Lanka must learn to swim in this newly turbulent economic ocean. Other global powers, most of them of equal importance to this country as the US, have vowed not to completely end the operation of JCPOA 2015 even though some powers are likely to adjust their own strategies to accommodate the American sanctions regime.

Colombo, too, must tread its path cautiously in navigating these troubled diplomatic waters. Most urgent is contingency planning for other impacts on our economy of the Iran pact disruption such as, obstacles to the intended expansion of tea and other exports to Iran, tourism and business investments.