SL Economy Faces Major Risks Amid Escalating Mideast War 📈

Sri Lanka’s recovery is under threat as the Mideast conflict disrupts global energy supplies. With critical infrastructure like Qatar’s LNG facilities damaged and the Strait of Hormuz effectively closed, the island faces severe "external shocks" to its "just-in-time" consumption model. • Energy & Supply Crisis The closure of the Strait of Hormuz has halted 20% of global oil and LNG supply. Crude prices remain above US$ 100 per barrel (up US$ 30 pre-war). Sri Lanka faces imminent shortages of oil, cooking gas, and chemical fertilisers as global tanker scarcity bites. • Domestic Mitigation Measures The Government has initiated emergency rationing to curb demand: • Reintroduction of the Fuel QR quota system. • Domestic fuel price hikes to reflect global costs. • Wednesdays declared public holidays; schools and universities closed. • Work-from-home encouraged for public servants. • Economic Outlook & Risks The country risks falling into "stagflation"—a cycle of negative growth and high inflation. While 2025 saw 5% growth, 2026 projections are grim due to rising input costs. Traditional aid from India is unlikely as they face their own shortages. • Financial Vulnerability As a "credit cardholder" economy, Sri Lanka’s ability to refinance debt is weakening. Higher import bills for energy and fertilisers, combined with potential drops in tourism and remittances, may exhaust foreign exchange buffers, stalling the current reform program.