Key points:
- Conflict in the Middle East risks pushing the Pacific Island Countries into an energy crisis, as around 80% of their energy relies on imported oil products.
- The states have some of the highest diesel use in power generation worldwide, relying on the fuel for between 49% and 100% of their electricity, despite diesel being the most expensive source of power generation.
- New ZCA analysis shows that Fiji’s annual refined fuel import bill could rise by USD 670 million, a 115% increase from 2025 levels, if oil product prices remain at post-shock levels. The increased bill equates to nearly three times Fiji’s annual healthcare budget.
- Vanuatu’s refined petroleum import costs could surge by USD 120 million, the equivalent of 11% of GDP, and Tonga’s by USD 55 million, 9% of its GDP.
- Fiji’s import cover ratio was 5.8 months before the crisis and is projected to fall to 3.4 months if current refined oil prices persist for a year, according to ZCA analysis.
- The current crisis underscores the need for Pacific Island Countries to accelerate electrification and increase local renewable power generation to provide accessible, clean energy and support economic stability.
- Despite contributing only 0.03% of global greenhouse gas emissions, many Pacific Island Countries have set targets to achieve 100% renewable electricity by 2035.
Pacific Island Countries face risks from fuel disruptions in the Middle East, due to their dependence on imported fuels
Island countries in the Pacific rely heavily on oil products for energy. Outside of Australia and New Zealand, oil products account for around 80% of the region’s total energy supply. Most fuels used in the region are entirely dependent on imports. Combined with long transport distances to remote locations, fuel prices are typically high and unstable.
Pacific Island Countries (PICs) have the highest diesel use for power generation worldwide, despite diesel being the most expensive option for power generation, according to the International Finance Corporation. Diesel accounted for more than half of electricity output in all PIC countries in 2022, with the exception of Fiji at 49%, and as much as 97% for Micronesia and Nauru.
Since the US-Israel invasion of Iran and shipping disruptions through the Strait of Hormuz, Brent crude oil prices have soared past USD 100 per barrel, exposing energy- importing countries like those in the Pacific to supply disruptions and negative economic impacts. Pacific Island Countries’ imported fuels are benchmarked against Singapore Gasoil where prices have increased even more than Brent crude, surpassing USD 180 per barrel in March.
Disruption to fossil fuel markets highlights the need for Pacific Island Countries to turn to alternative energy sources, particularly renewables, to reduce their exposure to volatility and to lower their costs. When oil product prices spike, expensive imports drain foreign currency reserves, pushing nations to accrue debt and rely on foreign development assistance.
At present, many PIC governments have not implemented demand-side restrictions to cope with the crisis, as has been the case in some fuel-import-dependent countries such as Bangladesh. But governments are appealing for international assistance and warning citizens against panic buying as oil prices rise.
New analysis shows that fossil fuel price shock could push up Pacific Island Countries’ refined petroleum import bills
Fiji, the second-largest economy in the PICs, imports most of its fuel from Asia, notably Singapore, a key hub now under severe strain due to the Middle East crisis.1Ranking by GDP based on latest available data. Refined petroleum was Fiji’s top import in 2024; the country spent the equivalent of 12% of its GDP importing the fuel.2Fiji spent USD 730 million on refined petroleum imports in 2024 when the country’s GDP stood at USD 5.97 billion.
The government of Fiji has said that the country has sufficient fuel stocks, with reserves ranging from 20 to 45 days, and that there is ‘no need for panic buying or stockpiling’. However, our analysis shows that the country could face significant vulnerabilities if the crisis is prolonged.
ZCA analysis shows that if refined petroleum prices remain at current levels for a year (USD 189.4 per tonne as of late March), Fiji’s annual refined petroleum import bill could rise by USD 670 million, a 115% increase from 2025 levels and equivalent to an additional 11% of the country’s 2024 GDP.3Fiji’s 2024 net petroleum product import bill was USD 632 million, according to the OEC. Using the 2025 average price of USD 87.97 per barrel for NYMEX Singapore gasoil (a proxy for the Means of Platts Singapore, which Fiji’s refined petroleum products are benchmarked to), we estimate Fiji’s 2025 net bill at USD 578 million. For a post-shock scenario, we assume NYMEX Singapore gasoil futures remain at its March 2026 price of USD 189 throughout 2026, implying a USD 670 million increase to Fiji’s import bill. We assume that import volumes remain constant (i.e. there is no demand destruction from higher prices). GDP data from the World Bank.
The increased bill equates to nearly three times Fiji’s annual healthcare budget.
Meanwhile, Vanuatu’s refined petroleum import costs could surge by USD 120 million, the equivalent of 11% of GDP. Tonga’s would rise by USD 55 million – 9% of its GDP.4Vanuatu’s 2024 petroleum product import bill stood at USD 114 million, and Tonga’s at USD 52 million. Applying the same method as in footnote 3, we calculate the countries’ 2025 import bills at USD 104 million and USD 48 million, respectively. In our post-shock scenario, the countries see increases of USD 120 million and USD 55 million, respectively.
The hefty price tag on fossil fuel imports is expected to significantly drain Fiji’s foreign exchange reserves
Ahead of the crisis, Fiji’s import cover ratio – the number of months of imported goods and services it could pay for using only its current foreign exchange reserves – was 5.8 months. Our analysis shows that this could fall to 3.4 months if current oil prices hold for a year, close to the 3-month threshold that indicates high levels of vulnerability. Vanuatu, on the other hand, has a larger buffer thanks in part to post-earthquake-related donor flows. Its import cover ratio will remain above 10 months, according to our analysis. Tonga is in a similar position.5Pre-crisis import cover ratio was calculated from foreign exchange reserves (USD 1.62 billion for Fiji; USD 636 million for Vanuatu; USD 398 million for Tonga) divided by the average monthly cost of the country’s total imports (USD 278 million for Fiji; USD 44 million for Vanuatu; USD 25 million for Tonga). Post-crisis import cover ratio was calculated by adding the additional petroleum import costs (USD 670 million/year for Fiji; USD 120 million/year for Vanuatu; USD 55 million/year per year for Tonga) to the average monthly import bill.
In 2022, amid the energy crisis sparked by Russia’s invasion of Ukraine, Fiji’s current account balance deteriorated to negative USD 866 million as imported fuel costs soared. This drained the country’s foreign reserves and coincided with an accumulation of debt. “While the risk of debt distress is currently moderate, high debt levels leave Fiji vulnerable to future shocks, with little space to respond,” the IMF said at the time. The country has since made some progress in reducing its debt-to-GDP ratio, though it remains vulnerable to global shocks in fossil fuel supply.
Disruptions to fossil fuel energy supplies are already affecting tourism in Fiji
Tourism is an important industry for many Pacific Island Countries and accounts for around 20% of Fiji’s GDP. Tourism Fiji has reactivated its Tourism Action Group (TAG), which guides the sector through major disruptions, to strengthen coordination and prepare the sector for potential impacts from the escalating crisis.
Chief Executive Officer Dr Paresh Pant said: “In light of the deepening Middle East crisis, I convened key stakeholders to reactivate the Tourism Action Group to collectively scenario-plan across the short, medium and long term.”
Crises underscore the need for Pacific Island Countries to deploy local clean energy and accelerate electrification
Pacific Island Countries have impressive clean energy ambitions, despite contributing just 0.03% of the world’s greenhouse gas emissions. Cook Islands, Fiji, Nauru, Marshall Islands, Samoa, Tuvalu and Vanuatu have all pledged to achieve 100% renewable electricity by 2035. Meanwhile, Tonga and Solomon Islands have set a target of 70% renewable electricity by 2030 and complete renewable generation by 2050. Nearly all PICs have endorsed the Fossil Fuel Non-Proliferation Treaty.
Meeting these targets and moving away from reliance on imported energy would provide a significant buffer against volatility in international fossil fuel markets. Once installed, renewable power doesn’t require any ongoing fuel input. The region has strong solar generation potential, and the ADB notes that solar power results in considerably lower costs than diesel generation in Small Island Developing States (SIDS).
For the time being, however, progress has been slow in much of the region. Solar accounted for less than 1% of Fiji’s electricity output in 2024, according to data collated by research group Ember. Solar made up 19% of Samoa’s generation, though diesel’s share remained above 50% in the country.
Aside from reducing its reliance on imported fuels for electricity, the region would also benefit from an accelerated shift to electric vehicles and other low-carbon transportation options, like electric ferries.
