Mideast War: Potential US$ 2.5 Bn Oil Shock for Sri Lanka 📈

The escalating conflict in the Middle East poses a severe threat to Sri Lanka’s fragile economic recovery, with rising energy costs and diplomatic pressures creating a new external crisis. • Energy & Oil: If global oil prices hit US$ 120 per barrel, Sri Lanka’s annual oil bill could double from US$ 2.5 Bn to US$ 5 Bn. Even a persistent US$ 20 per barrel increase adds US$ 820 Mn in annual costs, impacting transportation and electricity generation. • Remittances & Tourism: The Mideast accounts for 40% of total worker remittances (approx. US$ 3.2 Bn of US$ 8 Bn received in 2025). A prolonged war threatens these inflows and disrupts the hospitality trade, stalling growth in tourism and direct employment. • Diplomatic Strains: Sri Lanka is under global scrutiny after providing humanitarian aid to survivors of two Iranian naval vessels in its waters. Pressure from the US regarding the repatriation of these crews complicates the nation's neutral stance. • Economic Outlook: The IMF warns the recovery is "not a finished story." The shock could hit FDI flows and worsen macroeconomic imbalances, including inflation and debt sustainability. _Note: Based on provisional market estimates and current geopolitical developments._