### Persian Gulf Crisis: Impact on Sri Lanka 📈

A report detailing the economic risks following the constriction of the Strait of Hormuz and rising tensions in the Gulf. With fuel, food, and remittances at stake, the government faces critical affordability and supply chain challenges. • Energy & Fuel: Fossil fuels accounted for over 20% of 2024 imports. While the UAE remains a primary source, disruptions to Indian and Singaporean refined products are expected. Under current IMF agreements and the Public Financial Management Act, fuel prices must remain cost-reflective, signaling imminent price hikes. • Agriculture & Food Security: Sri Lanka is highly dependent on NPK fertilizers, with 36% currently shipped through the Strait of Hormuz and over 50% sourced from China. While a total harvest collapse (similar to 2021) is unlikely due to diversified sourcing, the Rs. 36.9 Bn subsidy budget may be strained by rising global costs. • Remittances & Labor: Potential attacks on Gulf desalination plants threaten the stability of the expatriate workforce. A mass return of workers would significantly dent remittance inflows, with few immediate alternatives for labor market diversification. • Tourism: The apparel and tourism sectors face headwinds from elevated airfares and inflation in European markets. Reputational damage to Gulf-based "super-connector" airlines may shift traffic toward Turkish Airlines or regional hubs. • Key Financials: • Fertilizer Subsidy: Rs. 36.9 Bn budgeted for 2026. • Energy Imports: >20% of total import value. • Tea Sector: Historically lost US$ 425 Mn during previous input shortages. _Summary based on provisional analysis of current geopolitical fallout._