Fears for Economy as Oil Price Rises Cost Maldives $100,000 per day

The Maldives faces higher electricity bills, more expensive boat and car fuel and growing pressure on the value of the Ruffiya, thanks to a sharp rise in the price of oil.

Oil reached $86 per barrel this month, an increase of over $10 per barrel since August. This means the country now has to spend an extra $100,000 per day on imported diesel, forcing up electricity and fuel costs.

The oil price increase has been caused by an upswing in the global economy, with most major Western countries, including the United States, now reporting healthy economic growth. Rising demand for oil from emerging economic superpowers, such as China and India, is also increasing prices.

President Nasheed, speaking at a forum on energy efficient lighting last week, warned that the Maldives is dangerously exposed to oil price increases, over which the country has no control.

“Every time the oil price goes up, we are brought to our knees and our development is set back,” the President said.

Worryingly, the oil price is likely to continue rising for the foreseeable future, with many independent experts predicting that oil will double in price to around $150 per barrel within two years.

For the Maldives, the knock-on effects of such a price increase would be severe. According to a 2007 United Nations report, the Maldives is Asia’s most oil vulnerable country, because the economy is almost totally reliant on oil based products, such as diesel and petrol.

When the oil price rises rapidly, the government is presented with the unattractive option of either allowing people’s electricity and fuel bills to rise, or increasing electricity and fuel subsidies.

The country’s current financial mess – caused by a sharp increase in government spending from 2006 – 2009 – means the government simply does not have the money to substantially increase subsidies.

The President says conserving energy, by adopting energy efficient products, and shifting from oil to renewable energies, such as solar and wind power, is the best long-term solution for the country.

Last week Mohamed Aslam, Minister of Housing and Environment, said his Ministry has undertaken an energy efficiency drive, which has reduced the Ministry’s electricity bill by Rf.30,000 per month.

Aslam said that many of the cost savings came from simple measures, such as switching off computers at the end of each working day and setting the air-conditioning system to a “comfortable” 24 degrees Celsius.

For individual households, investing in energy efficient products, such as ‘AAA’ rated fridges that use a fraction of the power of older models, and replacing old light bulbs, helps to reduce electricity bills.

For instance, replacing one Rf.30 halogen light bulb with a super-efficient LED bulb, which costs around Rf.260, would knock $330 off a household’s electricity bill, over the 20 year lifetime of the LED bulb.

Replacing a single halogen bulb with an LED would also save the country, over twenty years, the need to import 385 litres of diesel, saving some $320 of precious foreign exchange.

The rising price for oil is forcing other countries to adopt energy efficiency drives and switch from oil to renewable energy.

In 2009, South Korea – Asia’s forth largest economy – announced an $87bn investment plan for renewable energy and ‘green growth.’

Taiwan and India have also recently announced multi-billion dollar plans to increase solar and wind energy production.