Africa’s Governments Face Stark Choices as Fuel Prices Scale New Highs

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African governments face stark choices over fuel prices as sanctions on Russian oil disrupt global markets for energy, according to one of the continent’s key suppliers. 

“There is no doubt that this has a disproportionate impact on the economies of Africa,” Fadi Mitri, head of Africa for Puma Energy, the fuel distributing subsidiary of Trafigura Group, said in an interview. 

Puma operates in 17 countries on the continent and acts as a major distributor with 752 retail fuel stations, according to its 2021 annual report. Mitri’s comments are a reminder developing nations face a far bigger challenge meeting rising fuel bills than wealthy countries do. 

Oil and fuel prices have soared all over the world since Russia invaded Ukraine, prompting Europe to respond with sanctions against Moscow. 

That’s hurting countries who can least afford to pay as supply gets snapped up by richer nations, Mitri said. Though Africa is home to several major producers of crude oil, the continent has limited capacity to turn that into fuel for cars, trucks and planes.

“Indian and Middle Eastern refineries that used to supply Sub-Saharan and eastern Africa are today shifting their flows towards unregulated markets in Europe where they can secure more attractive prices,” Mitri said.

African governments are working out whether to cap domestic fuel prices through regulation — a move that could risk supply shortages — or face political consequences of allowing them to shoot higher and reflect the international market, he said, adding that some resource-rich countries are offsetting higher energy bills with gains from mining.

There have been mounting protests against rising fuel and food prices this month.

In Uganda, an opposition leader Kizza Besigye was detained after leading an anti-inflation demonstration in Kampala, while security forces fired on groups complaining of higher fuel in Conakry, Guinea, where there have been acute shortages.

“Do they choose to limit price increases, which will widen fiscal deficits and risk security of supply but limit inflation?,” Mitri said. “Or do they choose rapid price increases which will naturally result in inflation but maintain access to supply on the international market?” Source: Bloomberg