Deputy Minister flags risk from Strait of Hormuz tensions; “Tea for oil” deal with Iran faces uncertainty amid regional escalation
Escalating Middle East Tensions Could Hit Sri Lanka Economy
The Sri Lanka economy may begin to feel the ripple effects of the escalating Israel-Iran conflict as early as next month, according to Deputy Minister of Trade, Commerce, Food Security and Co-operative Development, R. M. Jayawardena. Speaking to The Daily Morning Business, the minister warned of significant vulnerabilities tied to both oil imports and key export arrangements with the Middle East.
Rising Geopolitical Heat in the Gulf
“The way things are going, we can see the impact of this conflict affecting us in a month’s time,” Jayawardena noted, referencing the intensifying airstrikes between Israel and Iran. “We do not know how significant the impact might be on Sri Lanka as of yet—but we have identified this as cause for concern.”
Though former U.S. President Donald Trump claimed a ceasefire had been brokered by the U.S. and Qatar, fighting has continued, with Iranian state media rejecting Israeli accusations of ceasefire violations. Over the weekend, U.S. forces launched airstrikes on three Iranian nuclear sites, prompting Tehran to begin closing the Strait of Hormuz—a vital shipping route for the global oil trade.
Why the Strait of Hormuz Matters to Sri Lanka
The Strait of Hormuz is a critical chokepoint through which 21% of the world’s oil and gas imports pass. According to the U.S. Energy Information Administration (EIA), about 14.2 million barrels of crude oil and 5.9 million barrels of refined petroleum products are shipped through the corridor daily.
The potential closure is prompting diplomatic urgency. U.S. Secretary of State Marco Rubio urged China to intervene, citing China’s daily import of 5.4 million barrels of crude oil through the Strait. India also relies heavily on the route, importing 2.1 million barrels per day. A prolonged disruption could rattle regional supply chains, including those that directly affect Sri Lanka’s energy security and trade dynamics.
Shell, Global Traders Brace for Impact
Shell CEO’s recent statement to The Guardian underscored the precarious nature of the conflict, warning that closure of the Strait would have wide-reaching consequences for global trade. “We too cannot focus on one sector at a time either,” Jayawardena emphasized, highlighting the government’s need to take a multi-sectoral approach in preparing for fallout.
“Tea for Oil” Agreement in Jeopardy
A key area of vulnerability for the Sri Lanka economy lies in its barter deal with Iran. The “tea for oil” agreement—designed to offset Sri Lanka’s debt from past oil purchases by exporting Ceylon tea—is now facing serious uncertainty.
“There are of course uncertainties around the tea for oil agreement bringing in the same benefits for Sri Lanka in the future,” the Deputy Minister admitted. Iran remains one of the largest importers of Sri Lanka’s low-grown Ceylon tea, and disruption to this flow could significantly impact foreign exchange inflows.
The barter deal, once praised for easing balance of payments pressure and boosting auction prices, now hangs in the balance as geopolitical tensions mount. The Sri Lanka economy, still recovering from past crises, may find itself navigating yet another external shock.
Uncertain Future, Strategic Planning Needed
“To speak on it with certainty, a full assessment of the situation, which has been changing day by day, is required,” Jayawardena concluded.
As Middle Eastern instability intensifies, Sri Lanka’s economic planners must prepare for a volatile period—one that could test the country’s resilience, trade adaptability, and diplomatic foresight.