Middle East Tensions Drive Up Global Oil Prices, Putting Pressure on Sri Lanka’s Fuel Costs
Sri Lanka is feeling the impact of an oil price surge after its preferred Murban crude spiked by 10.7%, following Israel’s attack on Iran and Tehran’s retaliatory strikes. Murban crude rose from $66.40 per barrel to $72.42 within a week. Though still below the December price of $74, this sharp rise threatens to increase fuel costs for Sri Lanka, which heavily relies on Murban crude for its state-run refinery operations.
Before U.S. sanctions, Sri Lanka’s main feedstock was Iranian light crude. The recent spike in prices poses a challenge to Sri Lanka’s fuel pricing formula, which is designed to adjust automatically to global market shifts. If the government delays necessary price increases, the Ceylon Petroleum Corporation (CPC) may be forced to borrow more, risking forex shortages—especially if these loans are backed by newly printed central bank money. Past policy missteps involving monetary expansion to maintain interest rate targets have triggered similar crises, as seen in 2015 and 2018.
Escalating Conflict Fuels Global Uncertainty
The latest spike in oil prices follows Israel’s assassination of top Iranian military and nuclear figures through missile and air strikes, carried out with apparent approval from former U.S. President Donald Trump. Trump later confirmed on his TruthSocial platform that a 60-day deadline for Iran had expired on Friday, prompting the escalation.
Iran responded with waves of missiles and drones, some of which breached Israeli defenses. Its military declared that Operation True Promise 3 will continue “as long as necessary,” as reported by Iran’s official news agency. This has significantly increased geopolitical tensions, pushing oil markets into further volatility.
Global Power Shifts and the Impact on Energy Security
Amid these developments, global power dynamics continue to shift. Critics argue that Trump’s policies have weakened post-World War II global structures, eroded NATO unity, and left a power vacuum exploited by aggressive regimes. The U.S., which has traditionally supported Israel, has now reallocated 20,000 anti-drone missiles initially promised to Ukraine, according to President Volodymyr Zelensky. American military resources are also being repositioned, with personnel being evacuated and naval assets redirected to the Middle East.
For Sri Lanka, this oil price surge underscores the fragility of its energy security and economic stability, especially in the face of international conflicts. Without careful management of monetary policy and transparent adjustments in local fuel pricing, the country risks renewed financial strain.