A broke and extremely cash-strapped Sri Lanka has turned to Russia for cheap oil, as much of the western world shuns Moscow over its invasion of Ukraine while savvy eastern nations such as India and China take advantage of a bifurcated oil market to buy as much crude as they can at a price that is roughly $30 below spot.
Trapped in the worst economic crisis in its history, the South Asian country said last weekend that it would pay $72 million for 90,000 tons of Russian crude ordered via a Dubai-based company and docked at Colombo for weeks, the Nikkei reported. Sri Lanka's first purchase of Russian oil since the outbreak of the war in Europe gave a new lease of life to a refinery in Sapugaskanda, just outside the commercial capital, which had been shut since March.
It also highlighted how the country's woes have given Russia an opening. Sri Lanka has already kicked off discussions with Moscow about directly importing crude oil, although it is unclear where the funds for such shipments would come from (spoiler alert: China). Russia has yet to announce any credit line for its South Asian customer.
Sri Lanka needs $554 million to import oil for the month of June alone, according to Power and Energy Minister Kanchana Wijesekera.
Experts say that while Sri Lanka's move to take Russian oil may raise eyebrows, the country has little room to be choosy about its trade partners as it suffers from a severe fuel shortage, daily power cuts and surging living costs. Furthermore, Russian oil continues to be traded at a steep discount to global prices.
Sure enough, Sergi Lanau, deputy chief economist at the Washington-based Institute of International Finance (IIF), said the decision to turn to Russia is mostly based on finding low prices in a desperate situation. "I do not think the government has much bandwidth at the moment to strategize on the geopolitical front," he told Nikkei Asia.
George I. H. Cooke, a former diplomat in Sri Lanka's foreign service, agreed the country is in a "tricky situation" and has no choice but to accept assistance from anyone willing to help.
Cooke also noted that ties with Russia are nothing new. "Sri Lanka has had a long-standing relationship with Russia going back to 1957 and this relationship has strengthened over years," he said. "That aside, we also need to understand that Sri Lanka is facing a very big crisis and as a result of that, we cannot be picking and choosing who we are willing to deal with."
Incidentally, the two countries are marking their 65th anniversary of relations this year. As of 2020, Sri Lanka and Russia's bilateral trade stood at $391 million with Sri Lanka exporting products such as tea, knitted gloves and lingerie, while Russia exported mostly wheat, iron and asbestos.
In March this year, Sri Lanka was among the few countries to abstain from voting on a United Nations resolution condemning Russia for its war on Ukraine. Alan Keenan, senior consultant at the International Crisis Group, said that the U.S. and European Union and other governments working to isolate Russia will no doubt be displeased about the new dealings. But given their own strong desire to prevent a complete economic and social collapse in Sri Lanka, it seems unlikely that there will be any serious repercussions.
"The Sri Lankan government has long maintained close ties with Russia," Keenan noted. "In the final years of the civil war [in Sri Lanka] and in the years following, Russia has offered important military and political support, including on the U.N. Security Council and Human Rights Council, where it helped protect Sri Lanka from accountability for its military's brutal and criminal tactics. With both countries in crisis, it is unlikely this will change now."