• The Southeast Asian country of Laos is discussing oil purchases with sanctions-hit Russia.
  • Laos is facing an economic crisis from a huge debt pile, a fuel shortage, and rising inflation.
  • Moody’s downgraded Laos’ credit rating further into junk territory last month, citing default risks.

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The Southeast Asian country of Laos is discussing oil purchases with sanctions-hit Russia, the Nikkei reported, citing local media.

It’s the latest Asian country after bankrupt Sri Lanka to face serious economic challenges from a huge debt pile, an acute fuel shortage, and rising inflation.

Long queues have been forming at gas stations in the Laotian capital city of Vientiane as motorists scramble for fuel. Gas stations in the city typically shut around 9 p.m. but are now closing up around 4 p.m. after they run out of fuel, the Nikkei reported.

The crisis has been brewing for months after Russia’s invasion of Ukraine exacerbated an ongoing global energy crunch. Regular gas prices in Laos have risen 40% in the four months since Russia invaded Ukraine, per the Nikkei. That’s in part due to the local currency falling almost 40% against the US dollar — the dominant currency for international trade — in the last year.

To manage the crisis, Laos’ government in May said it would be looking to buy cheaper fuels from new sources including Russia, according to the Laotian Times.

Russian gas is 70% cheaper than supplies from other international sources, according to Nikkei, citing local media.

Laos follows Sri Lanka in seeking out cheap Russian oil. Sri Lanka, which has already fallen into sovereign default, is planning to send an official delegation to Russia to negotiate oil deals.

Although purchases of Russian energy products undermine sweeping sanctions against the country over the war in Ukraine, they are not in violation of US or European Union sanctions. That’s because these trade restrictions do not forbid buyers outside US and EU jurisdictions from buying Russian oil.

Laos abstained from a United Nations resolution condemning Russia’s invasion of Ukraine. Laotian President Thongloun Sisoulith said at a conference in May that the country “will not take sides in today’s conflicts and disputes,” the Nikkei reported.

Laos borrowed heavily — especially from China — and is ‘on the brink of default’

Laos is also the latest Asian country to face a debt crisis as public borrowing hit $14.5 billion last year, according to a World Bank report published in April.

The country held $1.3 billion in reserves in December 2021 — but has to repay debts of around the same amount every year until 2025, according to the World Bank. Half of the debt is to China for major infrastructure projects, including a high-speed rail link to the east Asian economic giant that opened in December.

Ratings agency Moody’s last month downgraded Laos credit rating further into junk territory, citing “severe liquidity stress.”

The country is “on the brink of default” Anushka Shah, a vice president and senior credit officer at Moody’s, told Bloomberg in June.

Landlocked Laos, with a population of 7.5 million, is one of the least developed countries in Asia with a GDP of $18.8 billion in 2021, according to the World Bank. In comparison, Indonesia — Southeast Asia’s largest economy — had a GDP of $1.2 trillion.

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