Sri Lanka’s Iran crude imports may drop up to 20%

• Sri Lanka will continue Iran crude, but will have to reduce
• Sri Lanka indirectly penalised by US sanction – Basil

Reuters: Sri Lanka could trim Iran crude imports up to 20 per cent in the face of US sanctions, the island nation’s economic development minister said on Tuesday as it had taken strong measures to cut oil imports through higher fuel prices and interest rates.

Economic Development Minister Basil Rajapaksa said moves that are in place to avert a balance-of-payments crisis will reduce the Iran crude imports.

“We are not saying that we are not buying from Iran. We will continue to buy, but we will have to reduce some percentage. It can be around 15-20 per cent,” Rajapaksa told Reuters in an interview.

“Sometimes, even if we like to do it we will be forced to reduce it, because of the problems involved with transferring the payments and money,” he said referring to potential blacklisting by the US authorities.

Sri Lanka is facing one of the biggest squeezes from the impending sanctions, despite being a small player in the world crude market, since its sole refinery is set up in such a way it can only process crude from Iran and a handful of other suppliers.

The country has raised the key policy rate twice since February to two-year highs, allowed flexibility in the rupee exchange rate, increased fuel, transport, and electricity prices, and limited commercial banks’ credits to 18 per cent from last year’s 34 per cent.

So far, Sri Lanka’s policy response has been to seek cargoes from Oman and Saudi Arabia to offset its huge reliance on Iran, which supplied 93 per cent of the crude oil last year to its only refinery, the aging 50,000 barrels-per-day Sapugaskanda plant.

Switching to alternatives is not easy because the refinery has been configured to handle Iran’s high-sulphur and high-density crude oil.

“We are penalised indirectly,” Rajapaksa said sitting in his office surrounded by heaps of documents.

Sri Lanka ended a 25-year civil war in May 2009, triggering an investment boom supported by a $2.6 billion International Monetary Fund loan.

Economists have warned the post-war optimism is waning, blaming inconsistency government policies that have created uncertainty among foreign investors.