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Russian Oil Acquired on Credit by Sri Lanka and Chinese Foreign Minister Hosts Cooperation Meeting

May 26 - June 1, 2022 | Issue 9 - PACOM

Francesca Cavazzuti, Ashani Wijesuriya, PACOM Team

John Smith, Editor; Demetrios Giannakaris, Senior Editor


Gas Station in Galle, Sri Lanka[1]


Date: May 28, 2022

Location: Colombo, Sri Lanka

Parties involved: Sri Lankan government; Sri Lanka’s Energy Minister Kanchana Wijesekerra; EU leaders; Russian government; International Monetary Fund (IMF); Dubai-based intermediary Coral Energy

The event: A Russian oil shipment has been waiting offshore near Colombo’s port for over a month as the Sri Lankan government struggled to raise the $75 million needed to pay for the oil. According to Minister Wijesekerra, the shipment has now been acquired on credit from Coral Energy. He stated the Russian grade oil was not ideal for Sri Lanka’s sole refinery, which is optimized for Iranian light crude, but that no other supplier was willing to extend credit. Sri Lanka is experiencing an ongoing political and economic crisis, which has fueled mass protests throughout the country.[2]

Analysis & Implications:

  • While the shipment will likely improve oil shortages, it very likely does not address the oil shortage effectively. The oil shortage in Sri Lanka will very likely continue to persist, likely increasing the price of oil. This will very likely prevent industries such as rubber and petroleum refining from functioning correctly. Sri Lanka will very likely engage in fuel-rationing to distribute the oil shipment from Russia, and the government will likely prioritize metropolitan areas, such as Colombo, to distribute the oil.

  • The Sri Lankan economic crisis will almost certainly worsen as the government continues to accrue foreign debt to mitigate oil shortages. Foreign enterprises, like Coral Energy, are unlikely to extend the credit line for Sri Lanka's government to purchase additional oil as it will likely not want to be associated with facilitating the supply of Russian oil to states and, in turn, be sanctioned by the EU. There is almost no chance that Sri Lanka will be able to make sufficient debt payments, likely prompting the government to pressure the IMF to issue rescue funds and debt restructuring assistance. These conditions are very likely to lead to social unrest amongst the Sri Lankan population, spurring protests against the government.

Date: May 30, 2022

Location: Suva, Fiji

Parties involved: China; China's Foreign Minister Wang Yi; South Pacific countries; Micronesia’s government; US government; Australian government; New Zealand’s government

The event: During his tour of the Pacific nations, China's Foreign Minister hosted a video meeting with his counterparts from 10 Pacific nations to enhance cooperation. Minister Wang presented a five-year action plan to implement an agreement on regional trade and security. Despite the participants receiving the draft with general support, some countries, such as Micronesia, expressed concerns as it covered regional strategic interests. At the end of the meeting, Minister Wang declared that more time was necessary to deepen the discussion on the action plan and reach a greater consensus for future cooperation.[3]

Analysis & Implications:

  • The likely implementation of the action plan will very likely allow China to further expand its Belt and Road Initiative (BRI) in the Pacific region, very likely leading South Pacific economies to benefit from the BRI in their local and foreign trade. These investments will likely lead China to become the Pacific nations’ leading trading and investment partner, likely making them economically dependent on China. In the long-term, there is a roughly even chance that their dependency will make them more inclined to accept an increase in China’s presence on their territory, likely leading China to establish military bases in their territories.

  • China’s cooperation with Pacific nations will likely lead to a more significant presence of Chinese cargo ships and vessels in the South Pacific. China will likely expand the current communication network and port facilities across the islands to host its ships, ensuring their maintenance and replenishment. China will almost certainly invest in improved communication technologies, radars, and monitoring systems. The creation of this network will likely allow China to monitor the Pacific nations’ trade as well as the trade and military activities of Australia and New Zealand.

  • New Zealand, Australia, and the US will very likely try to halt China’s expansion in the South Pacific region by offering alternative trade and security deals to the Pacific nations. Despite the current negotiations stall, South Pacific countries will unlikely refute China’s agreement since it is a long-term deal that will very likely help them develop economically, entering the Chinese market and the BRI network. Australia, New Zealand, or the US will unlikely be willing to provide long-term aid, grants, and investments to South Pacific countries, likely leading them to cooperate with China despite the risk of China increasing its military presence in the South Pacific. China’s military expansion will almost certainly increase China’s overall influence in the Asia-Pacific region, very likely threatening the regional sphere of influence of Australia, New Zealand, and the US.

 

The Counterterrorism Group (CTG)


[1]Galle, Sri Lanka, March 13, 2022” by Alexanderstock23 licensed under Shutterstock

[2] Cash-strapped Sri Lanka gets Russian oil to ease shortages, France24, May 2022, https://www.france24.com/en/live-news/20220528-cash-strapped-sri-lanka-gets-russian-oil-to-ease-shortages

[3] China, Pacific islands unable to reach consensus on regional pact, Reuters, May 2022 https://www.reuters.com/world/asia-pacific/china-hosts-pacific-islands-meeting-fiji-security-ties-focus-2022-05-30/

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