Energy Supply Woes

The effects of the ongoing conflict in Western Asia have started to spiral across the world, raising fears of a broader regional war and disruptions to the global supply systems. Since the latest war began on February 28, with coordinated air and missile strikes by the United States and Israel on Iranian military and strategic sites, including those in Tehran, which killed Iranian Supreme Leader Ayatollah Ali Khamenei on the same day, the entire region has been witnessing escalating military and geopolitical tensions.  When Iran retaliated with missile and drone attacks on Israel, the US military bases and several Gulf countries, not only was regional stability disrupted, but the situation also led to severe economic consequences, such as disruption in shipping through the Strait of Hormuz, a vital global oil route, resulting in rising fuel prices and acute shortage of petroleum products in many Asian countries. As there are no signs of the conflict ending soon, the shortage of petroleum products is likely to deepen in the coming days.

Nepal, which fully depends on imports to meet its demand for petroleum products, has already started feeling the consequences of the conflict. The serpentine queues of consumers at petrol pumps and gas depots are testimony to this. Considering this, and the tendency of some individuals to hoard gas unnecessarily, the Nepal Oil Corporation (NOC) has started to supply only half-filled cooking gas cylinders to the market since Friday. These are the visible consequences; the invisible impacts could be far-reaching for a country like Nepal, whose import-based economy depends on remittances sent by migrant workers in the Middle East.  The multiplier effects of the conflict on Nepal were discussed at a programme organised by the Society of Economic Journalists Nepal (SEJON) the other day. According to a news report published in this daily, experts warned that the escalating conflict in the Gulf region could have multifaceted impacts on Nepal’s economy, ranging from fuel supply disruptions and labour issues to rising inflation and a slowdown in economic activity. When oil and gas prices rise, transportation costs increase, which in turn affects the prices of everything from food to construction materials, leading to a higher inflation rate and a contraction in economic activity.

Worse, the ongoing crisis could result in an acute crisis of chemical fertilisers during the planting season, as half of the total chemical fertilisers imported into Nepal come from Middle Eastern countries. Since the shortage of chemical fertilisers is a recurring problem in Nepal, the crisis will deepen the problem this year, which could result in a decline in farm yields. Indeed, if the conflict continues for a long period, it will reduce growth in every sector. If it escalates further, the government will need to divert resources and concentrate efforts on rescuing thousands of migrant workers.  Around 70,000 Nepali migrant workers have already registered their names on the government portal, saying they feel unsafe.  Of course, it is not the first time Nepal has faced a fuel crisis. It is the third such crisis in four decades, after 1988 when India obstructed fuel supplies, and the crisis that was repeated in 2015. However, it seems the successive governments have learnt no lessons from these crises and have made no effort to increase storage capacity. Had the government built infrastructure to store fuel required for at least six months, neither the consumers nor the government would have had to worry. The incoming government should prioritise enhancing storage capacity and implement measures to mitigate the impacts of the Middle East conflict.