Strategic imperatives for Sri Lanka amid Gulf conflict

Strategic planning and capable leadership are essential to mitigate the adverse effects of the ongoing conflict in the Middle East while capitalising on emerging opportunities. These views were shared at a seminar titled “The War in the Gulf Region: Its Implications and the Way Forward for Sri Lanka,” recently held at the Organisation of Professional Associations of Sri Lanka (OPA). 

The event featured Rear Admiral (Retd.) Y. N. Jayaratne and Advocata Institute Chief Executive Officer Dhananath Fernando as guest speakers. OPA Vice President and National Issues Committee Chairman Bhanu Wijayaratne moderated the discussion. OPA President Jayantha Gallehewa, along with office bearers and members, were also present.

Rear Admiral Jayaratne highlighted that the recent sinking of an Iranian vessel off the coast of Sri Lanka underscored the critical importance, as an island nation, of maintaining strong maritime awareness. Commenting on the legality of the incident, he noted that the United States had acted within the norms of international warfare and had reportedly issued prior warnings to Iranian sailors, enabling many to escape. He also stated that Sri Lankan authorities had been notified of the incident, and questioned how the vessel had been allowed to become such an easy target.

Discussing broader developments in the conflict, Admiral Jayaratne observed that Iran has increasingly relied on small, low-cost boats to counter a more powerful adversary. Despite having only a limited number of larger vessels, this strategy has enabled continued offensive operations. He further noted Iran’s attempts to exert pressure by threatening to close the Strait of Hormuz. While such conflicts have historically ended in negotiated settlements, he cautioned that the trajectory of this war remains uncertain. Reports from Tel Aviv suggest mounting pressure on Israel, which is accustomed to swift, precision-based engagements. In contrast, the current conflict appears to be heavily influenced by the White House, adding further unpredictability. He emphasised that modern warfare is inherently global, and its repercussions will be felt worldwide, including in Sri Lankan households, for months to come.

Admiral Jayaratne also pointed to missed economic opportunities for Sri Lanka. He noted that past disruptions in key shipping routes had led to increased activity at local ports. However, a lack of strategic foresight and leadership had prevented the country from fully capitalising on such developments. He cited the underutilisation of oil storage facilities in Trincomalee—originally constructed in 1925—as a prime example of untapped potential due to inadequate planning.

Fernando provided a broader geopolitical perspective, observing that history demonstrates the inevitability of conflict when major powers compete for dominance, often resulting in prolonged proxy wars. He remarked that the present conflict in the Middle East lacks a clear rulebook, suggesting a protracted period of geopolitical instability.

He warned that the economic impact of the conflict would be particularly severe for vulnerable economies like Sri Lanka. Rising global energy prices are expected to drive up the cost of living, while tourism may decline—albeit partially offset by extended stays of stranded travelers. He further noted that approximately 40% of Sri Lanka’s foreign remittances originate from the Middle East, and economic disruptions in that region could significantly reduce inflows. Export markets may also weaken as global demand contracts amid rising prices.

Questioning the adequacy of the Government’s response to the looming fuel crisis, Mr. Fernando pointed out that fuel accounts for nearly 20% of Sri Lanka’s import bill. He argued that the 2022 fuel crisis was not resolved by the QR code system alone, but rather through external financial assistance, including loans and currency swaps from countries such as India and China. In contrast, the current challenge lies in supply constraints despite the availability of foreign exchange.

He advocated for a substantial increase in fuel prices to reflect true costs and curb demand, noting that existing pricing mechanisms have not been consistently followed. He also highlighted rising insurance premiums and stressed the importance of implementing targeted safety nets to protect vulnerable groups. Emphasising long-term thinking, he observed that 70% of fuel consumption is attributed to the wealthiest 30% of the population, suggesting that price adjustments could encourage more efficient consumption patterns.

Fernando also outlined potential opportunities arising from the conflict. With the Middle East traditionally serving as a hub for global wealth, the current instability could prompt capital to seek alternative destinations such as Sri Lanka. However, he cautioned that significant reforms would be required to attract such investment, including improvements in labour laws, investment facilitation processes, cybersecurity, and maritime security. He stressed the importance of positioning Sri Lanka as a global financial hub, noting that the Port City project has thus far functioned primarily as a real estate venture. He expressed optimism that the conflict would end soon as it was draining the financial resources of the warring factions, Sri Lanka must proactively strengthen its economic stability to withstand present and future challenges.

During the question-and-answer session, the experts underscored the importance of investing in renewable energy to address future energy crises. However, upgrading the national grid remains a costly and complex challenge. Concerns were also raised regarding the timing and quality of recent coal purchases, highlighting the urgent need to address corruption. The discussion further touched on the erosion of the rules-based global order, as reflected in the current conflict.