Amid Sri Lanka's growing anxiety over possible disruption of Iranian oil imports due to United States-led sanctions against Iran, two important delegations from the U.S. and India visited the country this week, lent a sympathetic ear — and nothing more — to address the concerns.
The U.S. delegation led by its Assistant Treasury Secretary for Terrorist Financing and Financial Crimes, Luke Bronin, met the Sri Lankan Petroleum Secretary and others and, after listening to the Sri Lankan side, reportedly emphasised the need to curtail crude oil imports from Iran. When asked, the U.S. Embassy in Colombo declined comment on the visit.
Sri Lankan Minister for Commerce and Industry Rishad Bathiudeen, who also met Mr. Bronin on February 2, impressed upon him how Sri Lanka was just recovering from a debilitating war and why Sri Lanka needed to be supported in this effort.
The Indian Petroleum Ministry delegation was on an exploratory visit, and the Sri Lankan side was keen to find out if India held any solutions to its looming oil crisis. The delegation, whose visit had been on the cards from last July, also listened with sympathy to Sri Lanka's problems in the event of the Iranian oil sanctions taking effect.
While Mr. Bronin did not meet the political leadership, it is expected that U.S. Assistant Secretary of State Robert O' Blake, who visits late next week, will take up the issue with the political leadership. Mr. Blake, an out-spoken former Ambassador to Sri Lanka, is also expected to discuss political issues.
Sri Lanka's only oil refinery at Sapugaskanda can only process Iranian crude. Last year, 93 per cent of the crude oil imports were from Iran. Sri Lanka is in talks with Oman and Saudi Arabia to diversify imports, but both Omanian crude and Saudi Light Crude cannot be directly refined at Sapugaskanda; at best, they will have to be mixed with Iranian crude in a certain proportion for refining. The other issue is that Iran allows a seven-month credit, which will be impossible to obtain from both Oman and Saudi Arabia.
A blockade of Iranian oil will put tremendous pressure on Lanka IOC, which runs petrol retail outlets in the Sri Lankan duopoly market. The other retail player is the state-owned Ceylon Petroleum Corporation. Imports have already become expensive with the Sri Lankan Rupee being “slightly devalued” on February 3. Lanka IOC directly imports its requirements of petrol and diesel for the Sri Lankan market. CPC gets most of its supplies from the Sapugaskanda refinery.
In the event of a disruption in supplies to CPC outlets, coupled with the weakening of the Sri Lankan Rupee and the Central Bank's credit squeeze, Lanka IOC will begin losing at least LKR 35 per litre of diesel sold. Now, Lanka IOC loses about LKR 25 per litre of diesel sold because of the government subsidies.