Burgeoning fuel oil prices

Like many other countries, Bangladesh is suffering probably from the worst energy crisis in the last decade. Due to the Russia-Ukraine war price of fuel oil in the world market has increased rapidly. Simultaneously, the dollar crisis is continuing. Due to the high value of the dollar, even many government banks are not willing to open Letters of Credit or LCs for various international purchases of the government. Earlier, Bangladesh Petroleum Corporation said that due to the dollar crisis they are also unable to open LC for new oil imports. To tackle this situation government has increased the price of all types of fuel oil by about 50%. But as a result prices of all types of daily commodities and transport fares have increased. Meanwhile, due to the energy crisis power generation has been reduced and load shedding has increased tremendously almost everywhere in the country. The government is saying that the price of fuel oil will be reduced soon. On 29th August Tk. 5/- per litre has been reduced but its effect on consumers is very low. 

Although the price of fuel oil in the world market is now declining price of crude oil is still above $ 90 per barrel. Price of refined oil, which Bangladesh mainly imports, is $ 135. The oil now available in the Bangladesh market was bought at $140 per barrel. At least currently it is difficult for Bangladesh to buy oil at such a high price. So, finding out the source(s) of cheap oil is an emergency. Russia has offered to deliver diesel to Chittagong port at $59 per barrel. Refined diesel is selling at $135 per barrel in the global market. Transportation costs will be added to it. Therefore, it will not be wrong to say that Russia’s proposal is very lucrative for Bangladesh.

Earlier, in a briefing on 16th August planning minister said that Prime Minister Sheikh Hasina asked to start the process of buying fuel oil from Russia. She clearly said, “If India can buy Russian oil, why can’t we?” After getting this instruction BPC and the Energy Department started a move for buying Russian oil. (Samakal, 20th August 2022)

Due to different economic sanctions imposed by the US and Europe, Russia is currently unable to sell its oil easily. So, Russia is offering to sell oil at many concessions to different countries. This golden opportunity has already been availed by India, the world’s third-largest oil importer and consumer and China. While others retreated from buying Russian oil due to the ban India has accepted the opportunity to buy additional oil from Russia at a 30 per cent lesser cost than the global market price. India’s oil import from Russia was nearly zero last February but it rose to the second highest position from March. According to BBC India’s oil purchase from Russia till August is equal to the country’s total oil import in 2021. India buys oil from the Middle East. Replacing Saudi Arabia, Russia has risen to India’s number two oil supplier, Now Saudi Arabia is at number three. As usual, Iraq is number one.

Currently, Bangladesh’s relationship with Russia is warm but there is complication regarding the mode of payment. Due to sanctions Russia cannot participate in any conventional international transaction process. So, it is almost impossible for Bangladesh to pay the price of oil in dollars or euro. Russia, however, is willing to exchange the currency of the two countries, i.e. ruble-taka. Bangladesh Bank has been asked to examine that possibility, the planning minister said in the briefing on 16th August.

Experts say that paying the bill for oil import from Russia is mainly a matter of political decision, not fully financial. Bangladesh can buy cheap fuel from Russia but the problem is the United States. They fear that if the United States and European Union become dissatisfied, Bangladesh’s exports of $ 35 billion to these two major markets may be threatened. If they do not import garments from Bangladesh or reduce it, our economy will face a big crisis.

Russia, next to the United States and Saudi Arabia, is the world’s third-largest oil producer, previously exporting about 5 million barrels of crude oil a day. More than half of it went to Europe. The United States and its European allies launched a series of blockades against Moscow when Russia attacked Ukraine last February. The European Union also announced a reduction in its dependence on Russia for energy. Due to the ban on SWIFT payment in the dollar is not possible through banking channels and Russia is also stipulating payment in rubles for many countries.  

Regarding the mode of payment Ahsan H. Mansoor, Executive Director of Policy Research Institute, a private research organisation, said, “The price can be paid in three ways. First, we now export goods worth about $1 billion to Russia. The price of oil can be adjusted by the income we get from exports. Secondly, we have to make major purchases for Rooppur Nuclear Power Plant. Oil import costs can be reconciled with that purchase bill. Lastly, if the United States and Russia agree, the payment can also be made in dollars. We have to remember that like India we are not a big country. India has many large multinational companies on which US trade and investment depend but we don’t have that kind of situation. Indian market is very attractive to them from arms to consumer goods For that India can ignore this pressure but Bangladesh can’t, that’s the truth”- he said (Newsbangla, 17th August 2022). He suggested that Bangladesh can import oil from a third party -India, China and Turkey.   

A sample of Russian crude oil has arrived at Chittagong port. It will be sent to Eastern Refinery for testing. Due to the high content of sulfur Russian oil is heavy and the cost of refining it may be higher. However, the import of cheap from Russia is still uncertain. A proverb says – necessity knows no law. As fuel oil is our bare necessity we have to collect it from any source anyhow.    

The writer is a former Commissioner of Taxes. He can be contacted at [email protected]