Pacific Money | Economy | Southeast Asia

The Iran War Is Threatening Another Economic Crisis in Laos

The country of 8 million is still dealing with the impacts of a post-COVID crisis that was marked by high inflation and a collapse in the value of the kip.

A petrol station for boats along the Mekong River close to Luang Prabang, Laos.

Inflation in Laos is on the rise again, due largely to the sharp increase in fuel costs stemming from the war in the Middle East, threatening to push the country back into economic crisis.

According to the latest figures from the Lao Statistics Bureau, headline inflation rose to 9.7 percent in March, up from 6.2 percent in February and 5.1 percent in January, the Laotian Times reported on March 28. As the newspaper notes, the quarterly average has now exceeded the 5 percent annual ceiling that was endorsed at the ruling Lao People’s Revolutionary Party’s 12th National Congress in January.

The most substantial price hikes were seen in the goods and services category, which surged to 39.8 percent in March. The cost of transport and communications rose by 18.1 percent, while housing, water, electricity, and cooking fuel increased by 17.2 percent.

According to the state-run Lao News Agency, “the spike in inflation was largely driven by instability in the Middle East,” which has disrupted shipping through the Strait of Hormuz, a critical chokepoint through which approximately one-fifth of the world’s daily petroleum supply passes. This has resulted in disruptions that “have led to higher energy costs, which in turn have cascaded across multiple sectors of the economy.”

According to the Laotian Times, the price of diesel has more than doubled since the beginning of the war, from 19,970 kip ($0.91) per liter on February 26 to 44,340 kip on March 28. Laos has also experienced widespread fuel shortages, with more than 40 percent of the country’s 2,538 filling stations closed in mid-March, while long queues formed at petrol stations across the capital Vientiane.

Laos does not directly import energy from the Middle East, but is almost totally dependent on neighboring Thailand for its fuel supplies, importing 97 percent of its fuel and diesel from the country. Shortly after the outbreak of the war, Thailand announced it was suspending exports to conserve its own fuel supplies, but it has not applied the ban to Laos and Myanmar. Thailand did ban the export of fuel to Laos during border fighting with Cambodia in mid-December, out of fear that it........

© The Diplomat