Fuel shortage pushes debt-ridden Laos to seek cheap Russian oil

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Southeast Asian country Laos is discussing oil purchases with sanctions-hit Russia, the Nikkei reported, citing local media.

It is the latest Asian country after the bankruptcy of Sri Lanka to face serious economic challenges from huge debt, severe fuel shortages and rising inflation.

Long queues have formed at petrol stations in the Laotian capital, Vientiane, as motorists jostle for fuel. Gas stations in the city usually close around 9 p.m., but now close around 4 p.m. after running out of fuel, the Nikkei reported.

The crisis has been brewing for months after Russia’s invasion of Ukraine exacerbated an ongoing global energy crisis. Ordinary gas prices in Laos rose 40% in the four months after Russia invaded Ukraine, according to the Nikkei. This is partly explained by the fall of the local currency by nearly 40% against the US dollar — the dominant currency for international trade — over the past year.

To manage the crisis, the Laos government said in May that it would seek to buy cheaper fuels from new sources, including Russia, according to the Laotian time.

Russian gas is 70% cheaper than supplies from other international sources, according to Nikkei, citing local media.

Laos is following Sri Lanka in its search for cheap Russian oil. Sri Lanka, which has already fallen into sovereign default, plans to send an official delegation to Russia to negotiate oil deals.

Although Russian energy purchases undermine sweeping sanctions against the country following the war in Ukraine, they do not violate US or European sanctions. Indeed, these trade restrictions do not prohibit buyers located outside US and European jurisdictions from buying Russian oil.

Laos abstained from voting on a United Nations resolution condemning the Russian invasion of Ukraine. Lao President Thongloun Sisoulith told a conference in May that the country “will not take sides in today’s conflicts and disputes”, the Nikkei reported.

Laos has borrowed heavily – especially from China – and is ‘on the brink of default’

Laos is also the latest Asian country to face a debt crisis, with government borrowing reaching $14.5 billion last year, according to a world Bank report published in April.

The country held $1.3 billion in reserves as of December 2021 – but has to repay debts of around the same amount every year until 2025, according to the World Bank. Half of the debt is owed to China for major infrastructure projects, including a high speed rail link to the East Asian economic giant which opened its doors in December.

Rating agency Moody’s last month, Laos’ credit rating was further downgraded into undesirable territory, citing “serious


liquidity

stress.”

The country is “on the brink of default,” said Anushka Shah, vice president and chief credit officer at Moody’s. Bloomberg in June.

Landlocked Laos, with a population of 7.5 million, is one of the least developed countries in Asia with a GDP of $18.8 billion in 2021, according to the World Bank. In comparison, Indonesia – Southeast Asia’s largest economy – had a GDP of $1.2 trillion.

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