Amidst rising diplomatic tensions between Iran and the United States and mounting worries over oil supplies, the Government last week decided to keep the country’s petroleum resources at an optimum level at least for the next ten months.
The Cabinet of Ministers accepted a proposal by Petroleum Resources Development Minister, Arjuna Ranatunga to enter into two - term contracts with United Arab Emirates based Gulf Petrochem FZC to supply refined petroleum products between September 1, 2018 and June 30, 2019. The contract was awarded following recommendations by the Special Standing Cabinet Appointed Procurement Committee.
“Economic crises in Turkey and Iran may affect Sri Lanka. Hence, we should be prepared to face any such calamity,” Prime Minister Ranil Wickremesinghe warned at the opening of the ‘Deviduragama Udagama’ in Moneragala on Friday.
Wickremesinghe was referring to reports that the United States will impose sanctions on Turkey and Iran shortly and the warnings by international economic experts that Iran could then be on the verge of an economic crisis. The International Energy Agency had recently warned that the return of the United States sanctions on Iran—possibly coupled with production problems elsewhere—could make maintaining global supply “very challenging” in future. The U.S., which recently withdrew from the 2015 Iran nuclear deal, has demanded countries around the world to cut oil imports from Iran to ‘zero’ by November 4, 2018 or face sanctions. The decision has sent recent oil prices surging on expectations that it will tighten energy markets significantly more than expected.
Meanwhile, the Cabinet was told Tuesday that Iran has agreed to use the Sri Lankan rupee as the medium of exchange to carry out its fuel and tea trade transactions with Sri Lanka. Iran’s stance was conveyed by the Minister of Special Assignments, Sarath Amunguma. Consequently, a ministerial subcommittee comprising Mangala Samaraweera and Arjuna Ranatunga has been appointed to report on the matter.
Sri Lanka had been a regular importer of Iranian Crude oil until Western sanctions were imposed in 2012. The island thereafter sharply reduced its purchases of Iranian crude by switching to imports of other Middle East grades such as Oman and Murban crude oil.
“At present we don’t have direct links with Iran but we mainly purchase crude from Dubai and Singapore. But we will do what the Cabinet instructs us to,” Secretary to the Ministry of Petroleum Resources Development, Upali Marasinghe said.
If the system of full payments in rupee is implemented it will help Sri Lanka save on the forex outflow as oil imports have been the biggest factor contributing to a record current account deficit, say analysts.