Middle East crisis: How Tanzania can absorb global energy shocks

DODOMA: MORE than 30 per cent of the world’s crude oil originates from countries in the Middle East, a region currently affected by the ongoing tensions involving the United States, Israel and Iran.

Whenever conflict escalates in this region, it directly impacts global oil prices, particularly for countries that depend on imports, including Tanzania.

As key oil infrastructure, including storage facilities in the Gulf, becomes potential targets, concerns over supply disruptions continue to grow. Energy analysts warn that if the conflict persists, global oil prices could surge significantly.

The Middle East remains the world’s leading hub for oil production. When the region is engulfed in conflict, production, transportation and supply chains are disrupted, triggering price increases in the global market.

The strait of Hormuz factor

A major concern is the Strait of Hormuz, one of the world’s busiest oil shipping routes. Bordered by Iran to the north and Oman and the United Arab Emirates (UAE) to the south, the strait connects the Gulf to the Arabian Sea.

Roughly 20 per cent of the world’s oil and liquefied natural gas (LNG) passes through this corridor, including exports from Iraq, Kuwait, Qatar, Saudi Arabia and the UAE. The ongoing conflict has disrupted shipping activities in the area.

Reports indicate that thousands of vessels typically pass through the strait each month, but traffic has recently declined due to security concerns, with several ships reportedly targeted since the escalation of hostilities.

Global fuel prices have already responded to the crisis, with crude oil prices rising sharply amid fears of prolonged instability.

Implications for Tanzania

With no clear end to the conflict in sight, Tanzania like many oil-importing nations faces potential economic strain.

The country has relied heavily on imported petroleum products since the closure of domestic oil refineries in the 1990s.

Fuel used in Tanzania is imported through the Bulk Procurement System (BPS), under which demand from oil marketing companies is consolidated and tenders issued to pre-qualified suppliers to ensure competitive pricing and reliable supply.

A significant portion of these imports originates from the Middle East and Asia, including India, exposing the country to geopolitical risks in those regions.

Any disruption in major global oil routes could quickly affect fuel availability and pricing in Tanzania.

Rising global prices may increase import costs, driven by higher insurance premiums, transport risks and delays in shipment. Additionally, higher fuel prices could increase demand for foreign currency particularly US dollars placing further pressure on the country’s foreign exchange reserves.

This, in turn, may raise the cost of transportation and production across various sectors of the economy.

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Mitigating the impact

As the conflict continues, experts emphasise the need for both short-term and long-term strategies to cushion the economy.

One key measure is the promotion of Compressed Natural Gas (CNG) as an alternative fuel, particularly for urban transport, to reduce dependence on imported petroleum products.

During a recent visit to the Mlimani CNG station in Dar es Salaam, members of the Parliamentary Standing Committee on Energy and Minerals urged the government to intensify efforts to expand the use of natural gas.

Committee Chairperson Subira Mgalu noted that natural gas offers an affordable and environmentally friendly energy option, calling for increased investment in CNG infrastructure and wider adoption in both transport and households.

The committee also recommended that public institutions adopt CNG-powered vehicles to reduce fuel costs and improve efficiency, while urging the Tanzania Petroleum Development Corporation (TPDC) to expand filling stations nationwide.

Experts further recommend increasing strategic fuel reserves from the current 15 days to at least 20 days to enhance national energy security.

Another critical step is the establishment of a Strategic Petroleum Reserve (SPR), as provided for under the Petroleum Act of 2015.

Such a reserve would ensure sufficient fuel stocks during emergencies or global supply disruptions. Public awareness is also essential.

Educating citizens on global oil market trends can help them better understand fluctuations in domestic fuel prices.

Given the strategic importance of the Middle East in global energy supply, developments in the region will continue to be closely monitored.

The ongoing conflict is likely to influence oil prices and availability not only in international markets but also in import-dependent countries such as Tanzania.