Poor Economies Experience the Worst of Oil Price Hike

By Vijay Jayaraj – March 13, 2022

Vijay Jayaraj is a Research Associate at the CO2 Coalition, Arlington, Va., and holds a Master’s degree in environmental sciences from the University of East Anglia, England. He resides in Bengaluru, India.

The fighting in Ukraine has intensified and residents are fleeing cities with Russian forces showing no signs of retreating. What does this have to do with the lives of billions of people living far away from the war? Oil price increases.

The conflict has caused an increase in international oil prices, which have now crossed $130 per barrel, a 13-year high. As a result, gas prices at pumps across the globe are set to rise even further.

Being the largest consumers of automobile fuels, motorists in the U.S. and Europe are feeling significant economic pain. However, the situation is far more serious for populations of developing countries who have a much smaller buffer against life-threatening deprivation.

Take Nigeria for example, the largest economy in Africa ($514 billion USD). Neither the size of the economy nor the presence of crude reservoirs was sufficient to protect the country from the price shock. Nigerians already were grappling with a month-long fuel shortage due to quality-related import restrictions. While government subsidies soften the effect on users of gasoline, there is no such support for diesel.

Diesel is selling for Naira 625 per liter in Lagos and Abuja, 30 percent higher than two weeks ago. Diesel prices are expected to touch 650 soon and are disrupting everyday lives. Nigeria is infamous for its energy poverty, with only 40 percent of the 193-million population having access to electricity. The rising fuel costs will force many more millions into energy poverty.

In the neighboring West African country of Ghana, which is a net exporter of oil, fuel prices have risen dramatically in the first quarter and are affecting all kinds of businesses. For a country that is already in an ongoing economic crisis caused by debt distress, rising gasoline and diesel prices have become a nightmare.

Though Ghana exports high-quality crude, it has inadequate refinery capacity to convert domestic oil into finished petroleum products. Like Nigeria, it depends on imports of refined products. Currently, 80 percent of all finished petroleum products are imported. Inflation rates will be driven up by fuel prices that may increase by 6 percent, sending households into further chaos in what was originally supposed to be the fastest growing major economy in Africa.

In Asia, less-developed economies that were caught up with the decade-long green movement failed to invest in fossil-fuel technology and now face extraordinary import bills due to the rise in international crude prices.

Last month, Thailand’s inflation rose to its highest in 13 years at 5.28 percent. Speaking to Al Jazeera, the chairman of the Thai National Shippers Council said, “The geopolitical situation, global inflation, the pandemic – Thailand still has a high number of cases – and freight costs are still very high. All of that is certain to damage our growth.”

Neighboring Philippines is in murky waters as well, with gasoline prices set to rise by 11 Phillipine Pesos and eventually increase by a further 20 pesos by the end of March. A record high of 100 pesos per liter for gasoline will send small businesses and households into great distress.

In the abstract, the victims of higher energy prices are economic growth and the long-running fight against poverty, which translates into harder lives for billions of people struggling to fend off malnutrition and disease.

A simple solution would be to reverse anti-fossil fuel policies that cause shortages and to make the well-being of citizens the first priority.

Vijay Jayaraj is a Research Associate at the CO2 Coalition, Arlington, Va., and holds a Masters degree in environmental sciences from the University of East Anglia, England. He resides in Bengaluru, India.

This article was first published on March 13, 2022 on the American Thinker website.

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