How will the US-Israel war on Iran affect Sri Lanka?

Rehana Thowfeek
14 hours ago
4 min read

The impact of the war depends on how long it lasts and how far it spreads; if it ends in a few weeks, stability can return in a few months. If it continues for months, it will take years for the global economy to stabilise.

The Strait of Hormuz, located between Iran and Oman is a key chokepoint for global maritime trade with 30,000 ships passing through it annually. About 38% of the world’s crude oil, 29% of LPG, and 19% of LNG passesthrough it. Its closure on March 2^nd has disrupted global supply chains.

The impact on Sri Lanka depends on our trade relations with the countries affected.

Oil

The United Arab Emirates [UAE] supplies 38% of Sri Lanka's oil. The UAE has cut its production and can’tship any oil due to the closure of the strait. This will have a major impact on supply to Sri Lanka and the globe.
Major oil producing Gulf nations have been affected by bombings of their facilities and the closure of the Strait.
Oil prices reached record highs due to supply chain disruptions.
Sri Lanka’s CPC says it has one month of stock in storage.

Electricity

Approximately 20% of electricity was generated from thermal oil in February 2026 – the reduction in supply of oil will affect electricity prices and generation.
Sri Lanka’s monsoon season starts in May and during this time Sri Lanka usually generates about 50% of electricity from hydropower.
Sri Lanka generated about 31% of electricity from thermal coal in February 2026.
About 93% of coal products came from Russia in 2025. Russia is not in the conflict zone, but demand for coal will increase as a substitute for oil.
Sri Lanka is already experiencing a disruption in coal supply due to reasons unrelated to the war. This will compound the impact on electricity generation.

Gas

Sri Lanka imported about 53% of gas from Oman, 17% from the UAE, and 11% from Saudi Arabia in 2025.
Oman is not directly involved and has ports that don’t need to cross the Strait. Still, their proximity to the war might affect their shipment ability – for instance, the Port of Salalah was bombed recently.
Prices will increase from the supply shortage and higher insurance premiums.
Another 30% of gas came from Iraq in 2025. If the Strait of Hormuz stays closed, the supply will be disrupted.
In December 2025 and January 2026 there was a noticeable shift in import source away from Oman and to USA.
Sri Lanka is already facing a shortage of gas due to reasons unrelated to the war.

Food and other items

When gas prices rise, food prices also rise.
57% of the fertilizer in Sri Lanka came from China. 10% comes from Uzbekistan. Both countries are outside the direct conflict zone.
Yet, 22% of fertilizers came to Sri Lanka from countries in the Middle East.
There will be an effect on fertilizer prices which will have a cascading impact on food supply and price levels.
Oil and gas are key raw materials for many products. A reduction in supply of these will impact other items we use daily.

Exports

25% of Sri Lanka’s tea is exported to Saudi Arabia, Iraq, UAE, Iran, Kuwait, and Israel – as these countries face the blockade, tea shipping routes are significantly disrupted.
The blockaded countries account for ~$450 million export revenue.
About 52% of tea exports go to the wider Middle Eastern region.
Countries not in the conflict may also face supply disruptions.  
Sri Lanka earns $852 million from merchandise exports to these blockaded countries. This amount is about 7% of the country's total merchandise export revenues.

Worker remittances and tourism

Worker remittances are a top source of foreign exchange inflows into the country.
Kuwait, Saudi Arabia, the UAE, and Qatar are top sources of worker remittance inflows. In 2025, they made up 38% of the country’s total.
Worker safety is already threatened. If there is further escalation, Sri Lanka will have to repatriate its citizens.
Tourism earnings will face challenges due to flight cancellations, airspace closures, and higher travel risks. This is especially true for EU markets.

Cost of living

Inflation in SL has been low for the past two years. It has stayed under 2% and has even dipped into negative numbers at times.
Due to major supply chain disruptions and rising oil and gas prices, costs and prices will rise. This will impactthe cost of living.
Sri Lanka is already facing a domestic supply shock from Cyclone Ditwah.
The persistence of the impact will depend on the length and intensity of the war.

This analysis was written on 12^th March 2026. Because this situation is developing rapidly, these insights are subject to change.

Written by Rehana Thowfeek, Co-Founder & Director – Civic Education at Arutha.

Sources

UNCTAD Rapid Analysis on Strait of Hormuz Disruptions
Data from Sri Lanka Customs
Statistics from Central Bank of Sri Lanka
Statistics from Tea Exporters Association Sri Lanka
“Market Snapshot: Petrochemical products in everyday life” by Canada Energy Regulator
“How many ships pass through the Strait of Hormuz?” by Brittanica
CAL Research