Arutha Research flags risks to energy and food from Middle East war

• UAE supplies 38% of Sri Lanka’s oil; CPC says about one month of fuel stocks available
• Middle East markets account for $ 852 m or 7% of Sri Lanka’s merchandise exports
• Gulf countries provide 38% of Sri Lanka’s workers’ remittance inflows
• About 22% of fertiliser imports originate from Middle Eastern countries

Sri Lanka faces potential pressure on energy supplies, food prices, exports, and remittance inflows as the war involving the US, Israel, and Iran disrupts trade routes and energy markets in the Middle East, according to analysis by policy research organisation Arutha.

The study notes that the economic impact will depend on how long the conflict lasts and whether it spreads further across the region. A short conflict lasting a few weeks could allow global supply chains to stabilise within months. A prolonged war could take years for global markets to regain stability.

A central risk lies in disruption to shipping through the Strait of Hormuz, the narrow waterway between Iran and Oman and one of the world’s most critical energy transit routes. Roughly 38% of global crude oil supplies, 29% of liquefied petroleum gas (LPG), and 19% of liquefied natural gas (LNG) pass through the Strait each year.

Arutha said the closure of the Strait on 2 March has already disrupted supply chains and driven oil prices sharply higher.

Sri Lanka’s exposure to the Gulf is significant. The United Arab Emirates (UAE) supplies about 38% of Sri Lanka’s petroleum imports. Any disruption to shipments from the region would tighten domestic fuel supply. The Ceylon Petroleum Corporation (CPC) has indicated that existing fuel stocks are sufficient for roughly one month.

Electricity generation is also linked to oil availability. Thermal oil accounted for about 20% of Sri Lanka’s electricity generation in February 2026.

Hydropower typically increases during the monsoon beginning in May, when reservoirs generate close to half of national electricity supply. Coal remains another key source of power generation, accounting for about 31% of electricity production in February.

Sri Lanka imported about 93% of its coal from Russia in 2025. Russia is not directly involved in the conflict, but global demand for coal may increase as countries shift away from oil, tightening supply. Sri Lanka is already experiencing disruptions to coal supply unrelated to the war.

Gas imports are also concentrated in the Gulf region. Oman accounted for about 53% of Sri Lanka’s LPG imports in 2025, followed by the UAE at 17% and Saudi Arabia at 11%. Oman is not directly involved in the conflict and its ports do not require passage through the Strait of Hormuz. However, the proximity of the war to regional shipping routes increases the risk of logistical disruptions.

Higher energy prices are likely to affect food production and transportation costs. Sri Lanka imports about 57% of its fertiliser from China and about 10% from Uzbekistan. Both countries lie outside the conflict zone. However, roughly 22% of fertiliser imports originate from Middle Eastern countries.

Sri Lanka’s exports are also exposed to the region. Around 25% of tea exports are destined for Saudi Arabia, Iraq, the UAE, Iran, Kuwait, and Israel, generating about $ 450 million in revenue.

In total, Sri Lanka earns approximately $ 852 million from merchandise exports to these markets, equivalent to about 7% of the country’s export earnings. More broadly, around 52% of Sri Lanka’s tea exports are shipped to the wider Middle Eastern region.

Workers’ remittances form another key link. Kuwait, Saudi Arabia, the UAE, and Qatar together accounted for about 38% of Sri Lanka’s remittance inflows in 2025.

Arutha Research noted that an escalation of the conflict could raise concerns over the safety of migrant workers and may force Sri Lanka to consider repatriation of citizens employed in the region.

Tourism earnings may also come under pressure as airlines reroute flights, airspace restrictions expand, and travel risks increase, particularly for long-haul markets such as Europe.

The analysis adds that higher oil and gas prices could reverse Sri Lanka’s recent period of low inflation. Consumer prices have remained below 2% in recent years, but supply disruptions in global energy markets would place upward pressure on the cost of living.

Arutha Research also noted that Sri Lanka is already dealing with domestic supply pressures following Cyclone Ditwah, which could intensify inflationary effects if external shocks persist.