Understanding and adjusting to a war that’s both far and near

I sit in one of the dives

On Fifty-second Street

Uncertain and afraid

As the clever hopes expire

Of a low dishonest decade:

Waves of anger and fear

Circulate over the bright 

And darkened lands of the earth,

Obsessing our private lives;

The unmentionable odour of death

Offends the September night.

First stanza of W.H. Auden’s poem, “September 1, 1939”

 Assessing the rights and wrongs of war or making prognostications on the outcome may entertain. But an analysis of Sri Lanka’s strengths and position in the world will make it evident that Sri Lanka cannot influence or shape the events unleashed by Netanyahu-Trump.

We can only try to understand them, develop scenarios, and work to minimise the negative impacts on our citizens. The last time Sri Lanka had to evacuate citizens from a conflict zone, we had to rely on the kindness of India. This is not to suggest that the more than one million Sri Lankans in the theater of conflict are in any serious danger at this time.

Understanding

We are getting a crash course on why we should be aware of what is going on in the world and of our place in it: our interconnectedness. A far-away war is beginning to cause disruptions to everyday activities. Next growing season, we may find that fertiliser is scarce and dear because of the Strait of Hormuz. Far away is usually understood as having little significance and impact. We must redefine proximity and significance in this interconnected and global context.

The theater of the present war stretches from the Red Sea, across the Persian/Arabian Gulf, to Afghanistan’s border. Drones targeted a RAF base in Cyprus and the attack on a warship close to our waters suggest the boundaries are elastic. Because this is primarily an air war currently (ground war has started in Lebanon and the war on the seas has come close), a massive air space is affected. It’s asymmetrical, with Iran deploying swarms of relatively inexpensive Shahed drones against the sophisticated (and expensive) weaponry of Israel, the US and their Arab allies. Shaheds have the advantage of being manufactured by Iran at relatively low cost. They were battle tested against Ukraine.

The aviation hubs so painstakingly built up by the Gulf Kingdoms have been made temporarily unusable and have suffered reputational harm that may be long lasting. Travel plans of Sri Lankans and tourists have been disrupted. The three affected super connectors brought in slightly more passengers than SriLankan Airlines, bringing in one out four passengers.

There are few short-term solutions for those with tickets on the Gulf-based super connectors, whose fleets are parked in various airports. This affects the tourism industry and the livelihoods it supports. It’s possible that more than 40% of European and Russian tourists are coming through the Gulf-based airlines. Luckily, Indian and other Asian tourists are unaffected. It will take time for fuel prices to affect those volumes.

Because of economic sanctions that have been in place for years, Sri Lanka’s trade with Iran has declined. For example, the gradual settlement of money owed for crude oil using tea as barter is still not complete. It appears the government was right in disregarding Trump’s threat to impose an additional 25% tariff on countries trading with Iran. If one leaves aside the tea under the barter arrangement ($ 62.14 million), total exports amount to a negligible $ 5 million; imports

were 

$  2.4 million in 2024.

Sri Lanka has significant merchandise trade with the frontline Gulf States. The UAE was the 7th largest export destination for goods in 2024 

($ 334.63 million). Service trade is likely to be larger. It is home to 350,000 Sri Lankan workers. Actual numbers may be higher because many Sri Lankan companies and high-net-worth individuals have offices/presence there. It is a key conduit for tourists because of the super connector airlines. With the UAE Sri Lanka imports more 

($ 1,291 million) than it exports. The leading categories (sugar, bakery products, wire, edible fish, etc.) appear to be coming through the UAE, rather than being manufactured there.

Saudi Arabia takes $ 115.42 million of our exports, the bulk being tea 

(72 million). Banana exports amount to 

$ 7 million. In terms of imports, petroleum oil and gas comes in at $ 63 million, a close second to plastics. 246,139 workers are reported to be living there. It is interesting that bananas feature among Sri Lanka’s top exports to Qatar as well.

In addition to petroleum products where prices are already moving up, it appears that Sri Lanka will have to worry about fertiliser prices and shortages. We import around $ 8 million worth from Saudi Arabia; $ 3.8 million from Jordan; $ 30 million from Qatar; $ 13 million from Bahrain. This meshes with the%ages of commodities going through the Hormuz Strait: 44% of the world’s sulfur; 31% of urea; 18% of ammonia; 15% of processed phosphates. When insurance rates go up and suppliers declare force majeure, as is happening now, supply and prices will be affected.

Adjusting

The world was already an uncertain place when Netanyahu-Trump started this war. The craziness of Trump’s here-today-gone-tomorrow tariffs has been compounded by the shooting war and Iran’s response. Every country and every company is trying to manage the risks created by US actions by diversifying dependencies.

The rupture of the world order is such that it would be foolhardy to offer more than ways to think about the problem. The internet’s design is risk tolerant. When my late colleague Abu Saeed Khan and I were advising UN ESCAP and member states on the vulnerabilities of digital infrastructure, we leveraged the analogy with the internet. The internet is designed to route around failure.

But over-reliance on undersea cables in the Asia Pacific at that time left little room for routing around. At that time Bangladesh’s internet hung on a single undersea cable. Now there are two operational, with more to come. Then, internet traffic did not go through India. Now, there are terrestrial links. Across Asia, there are more terrestrial and hybrid cables.

If you have all one cable connecting your island to the world, the risk is very high. If you have multiple cables but they land in the same location, the risk is lower but present. If, like Hong Kong, that government has encouraged multiple cables to land in the territory but have taken the extra step of having the landing stations in different locations, the risks are even lower. That logic can be extended to data centers and pretty much everything else.

Super connector airlines offer advantages well understood by the passengers who make the purchase decisions. But it seems that having three based in the Gulf close to each other may not have been such a good idea. Once a hub becomes established, it is difficult to displace, as evidenced by the failure of Kuala Lumpur International Airport to displace the previously established regional hub airports. 

The phenomenon is explained by direct network effects.  The literature refers to two kinds of network effects, direct and indirect.  Direct network effects are those generated through a direct physical effect of the number of purchasers on the value of a product.  Additional users increase the value of the product to existing users. The more passengers at an airport, the better the connections will be. Indirect network effects are seen when complementary goods (e.g. toner cartridges) become more readily available or lower in price as the number of users of a good (printers) increases.

While a hub port does have some advantages due to direct network effects, the fact remains that each hub port is in competition with other hub ports in the region and is therefore not immune to competitive pressures. The reputational damage incurred by the Gulf airports and super-connectors may have created opportunities for others in the fast expanding Asian market.