Relying on fuel imports has eaten into the country’s foreign reserves. Credits: GettyImages/Bloomberg.

Bolivian President Luis Arce announced on Tuesday that he would hold a public referendum on lifting fuel subsidies in the face of rising scarcity.

Unrest in Bolivia 

The decision comes as discontent with the current government has grown over recent months.  

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Truck drivers and other protesters have blockaded roads to major cities over the scarcity of diesel. Imports from Russia were recently stranded in a Chilean port due to a rainstorm, making shortages even more acute.  

In June, a military official attempted to take over Arce’s government by storming into the presidential palace with tanks and troops. The Army commander at the centre of the coup, Juan José Zúñiga, said that Arce’s government’s “impoverishing” of the country had led him to the decision.  

However, many expressed suspicions afterwards that Arce had staged the coup to boost his own popularity. 

Subsidising the country’s fuel intake 

Bolivia’s trouble with supplying the oil and gas sector stems from the decline of its own production.  

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Armin Dorgathen, the national oil company’s president, explained that political mistakes had kept investors away. Bolivia had at one point been a major exporter to neighbouring economies like Brazil.  

Now, it faces widespread scarcity and imports 80% of its diesel. The decline in local production and the need to dramatically increase imports have decimated the country’s foreign reserves.  

Importing half of the gasoline it needs to meet domestic demand currently costs $800m ($b5.53bn) annually.  

While lifting the subsidies would take the strain off the government’s dwindling reserves, it risks huge price shocks in a country where the people already face economic hardship.

Finding a partner in Russia 

Bolivia is one of Russia’s strongest allies in Latin America. Their collaboration extends from nuclear projects and hydrocarbons to food, education and sports.  

The state energy company, YPFB, is looking for Russia’s help to ease the energy crisis. This is good news for the Kremlin, which has been hit with wide-ranging sanctions on its energy exports following its invasion of Ukraine.