Colombo braces for shocks from West Asia crisis
The stock market recovered after a day-long crash, the Colombo auction didn’t react but was on alert while airlines are bracing for possible pressure on air fares if tensions in West Asia escalate to a full blown conflict between the US and Iran.
Board of Airline Representatives (BAR) Chairman Dimuthu Tennakoon told the Business Times that airlines operating to Sri Lanka have been called for a meeting tomorrow and they expect to have at least a committee meeting. So far, he noted that airlines have not changed their pricing as re-routing of airline traffic from travel via Iran and Iraq is likely to be a short term measure.
Pricing however could get impacted should the re-routing become a permanent feature in future depending on the situation in those countries.
Across economic sectors that deal with West Asia and the Persian Gulf region, there were worries and concerns but these dissipated by Friday after the US made conciliatory gestures. Tensions escalated after a top Iranian commander was killed in a US drone strike in Iraq while Iran retaliated with missile strikes on two bases in Iraq housing US military staff.
Share prices at the Colombo bourse fell sharply on Wednesday but recovered the next day to post the highest ever turnover in recent times after a 10 per cent stock of John Keells Holdings was sold in a transaction between two foreign entities.
In terms of the safety of Sri Lankans working in Iran and the rest of the Persian Gulf, Government spokesman Minister Keheliya Rambukwella said they were monitoring the situation and would take steps to evacuate Sri Lankans is the need arose. There are over a million Sri Lankans working in West Asia.
Former Planters Association Chairman and Hayleys Plantations Managing Director Roshan Rajadurai said that it was too early to predict the outcome on tea arising out of the tensions between US and Iran.
He noted however that a price spike was expected in the short term since panic buying could spell a surge in demand. But in the long term prices would be determined by the buying power available at the time. Colombo auction prices this week remained buoyant.
Iran, being one of the biggest buyers of Ceylon Tea, seems to be shifting its purchasing pattern by moving towards Indian teas even as they drag their feet on the Sri Lanka tea for oil deal.
Indian authorities were bracing against this week’s US announcement of maximum sanctions imposed on Iran. So far food does not face sanctions but it seems challenging to carry out trade on food with Iran as questions are raised on every aspect of the trading item.
In terms of fuel prices and supply, while there is increasing uneasiness over the evolving situation in West Asia, officials said there were enough supplies and that Sri Lanka was prepared to face any impact from new US sanctions on Iran.
The country imports 30 to 40 per cent of its crude oil from the conflict-prone Gulf region, government data showed.
Sri Lanka buys crude and refined petroleum from Singapore, Dubai and Fujairah, a Ceylon Petroleum Corporation (CPC) official said, adding that the fuel prices will go up to a new high if the Gulf tensions escalate.
Lanka Indian Oil Corporation (LIOC) sources said they have sufficient petrol and diesel reserves to meet any eventuality.
Sri Lanka’s crude oil bill is around US$250-300 million per month and an increase of just 15 per cent within a few days can exert some impact on local fuel supply, an analyst said.
If the oil price continues its upward trend owing to US-Gulf tensions the LIOC will have to increase prices in accordance with government terms.
Sri Lanka has stopped crude imports from Iran and is actively switching to other crude grades from Malaysia or Singapore, as South Asian importers, including India, significantly restrict supply in the wake of US sanctions against Tehran.