OPINION: The correlation of the Russian-Ukraine War to fuel prices in Uganda
The ongoing assault on Ukraine by Russia’s President Vladimir Putin has led to numerous economic sanctions on Russia’s economy including the ban on Russian crude oil from circulation by oil and gas companies like Shell. In a statement made by Shell’s CEO on 8th March 2022, Ben Van Beurden stated, “Today we announced our intent to withdraw all our involvement in all Russian oil and gas including crude oil, petroleum products, gas and liquefied natural gas (LNG) in a phased manner. We will stop all spot purchases of Russian crude oil.”
Russia being one of the major oil-producing countries in the world, such bans have disrupted the supply chain of fuel and gas thus a spike in their prices. In Uganda today, the cost per litre of petrol and diesel are going for Ugx 5,000 to 5,300 and Ugx 4,000- Ugx 4,500 respectively higher than the country has ever seen in a decade.
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Why Should Ugandans Be Worried?
● An increase in fuel prices means an increase in transportation cost of goods and services making their final cost relatively higher thus inflation. In fact, the inflation rate has risen to 5.01% from 2.16% recorded in 2021.
● Slow economic growth since a bigger percentage of household incomes will be spent on fuel and other petroleum products. This will inevitably lower the demand for other products making these products’ salesman register losses.
● Economic inequalities could potentially rise leaving many households with less income to spend on other basic needs such as food and health care, and because the cost of these basic needs is also on the rise, malnutrition diseases and school dropout by children and young people could follow subsequently.
● Social unrest and crime could go on the rise. Because people have less money to spend on basic needs, they could resort to criminal behaviour like theft in order to sustain their livelihoods.
What could possibly be done?
● Much as Uganda is a liberalised economy, the government should consider regulating the price at which fuel is sold to the final consumer bearing in mind the cost at which it is acquired by the oil and gas companies, and a reasonable profit markup for them.
● Strategic widening of the portfolio of companies or countries from which Uganda's oil and gas is refined and bought respectively to be able to meet and satisfy the local demand. In fact on 28th February 2022, the Petroleum Authority Of Uganda(PAU) tweeted, “For Uganda’s oil and gas sector, the FID announcement signifies the commitment of the oil companies to invest close to 10Billion USD to develop Uganda’s oil and gas resources through the implementation of the Tilenga Project in Buliisa and Nwoya Districts.”
People should cut unnecessary expenditures, especially on luxurious items for them to have enough income to offset their basic needs. Once the demand for goods and services lowers, their cost inevitably lowers thus checking inflation to an extent.
