With global oil prices jumping because of unrest in West Asia, Nepal announces a two-day weekend to conserve fuel, and now the country has shifted to a five-day workweek, hoping this cuts fuel use and takes some strain off its limited supplies. Since Nepal relies on imported oil, even small disruptions hit hard, and with the Iran conflict shaking up the global crude market, Nepal is feeling it, signaling just how exposed it is when the world’s oil trade gets vulnerable.

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Why Did Nepal Shorten Its Working Week to Five Days?

• Crude fuel shortage: Nepal sources almost 100% of its fuel requirement through imports, mainly from the Indian IOC. Any rise in the global price of crude fuel, including the case where Brent crude rises above $90-$100 a barrel during political conflicts, affects the domestic price and availability.
• Cabinet emergency ruling: The cabinet made the decision on the two-day weekend rule after an emergency meeting, and the policy cuts down the consumption of fuel for transportation by around 15%-20% per week in the cities.
• Fuel requirement by road transport: Road transport uses almost 60% of the petroleum fuel consumed in Nepal, with the consumption in the Kathmandu valley accounting for most.
• Cost implications from imports: The cost of importing fuels into Nepal exceeds NPR 300 billion per year (~$2.2-$2.5 billion).

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How Would the Iran War Oil Shock Affect the Economy of Nepal?

• Global oil price volatility: Oil shocks arising out of wars can lead to disruptions in oil transportation via critical passages such as the Strait of Hormuz, where about 20% of international oil commerce is conducted. Such disruptions result in higher oil prices, which negatively impact oil-importing nations such as Nepal.
• Influence on currency and inflation rate: An increase in oil prices results in an increase in the cost of transportation and other essential goods, which causes inflation.
• Trade deficit issues: Nepal already faces a trade deficit problem. An increase in oil prices only widens the trade deficit, placing a strain on foreign exchange rates, which are vital for importing products.
• Regional dependency risks: Since Nepal relies on India for refined petroleum, any upstream price shock or logistical bottleneck in India also cascades into Nepal’s supply system.

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What Long-Term Solutions Is Nepal Considering to Reduce Fuel Dependence?

Nepal is looking at various infrastructure developments as a long-term approach to reducing its dependence on foreign energy sources, especially imported fossil fuels. The shift towards electric vehicles (EVs) will be supported by Nepal’s abundant hydroelectric potential. The majority of the country’s electricity generation is through hydropower, making the transition to EVs environmentally and economically attractive.

Available data indicate that during the last few years, the importation of EVs into Nepal has increased at an impressive rate, with approximately 10 to 15% of new vehicle registrations for the 2023-24 year representing this category. Nepal announces a two-day weekend to conserve fuel while also supporting long-term efforts to diversify energy sources and develop sustainable methods of transportation.

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