• 1: Tea exports, petroleum imports, and foreign remittances at risk.
• 2: Diamond polishing industry also faces potential impact.
• 3: Conflict could disrupt shipping routes and global economy.

A wider war in the Middle Eastern region could impact tea exports and the import of petroleum to Sri Lanka while it could also impact the inflow of foreign remittances, the Central Bank of Sri Lanka (CBSL) said.

Accordingly, CBSL said that a wider war in the Middle East would impact the merchandise trade of Sri Lanka as the country has major exposure in tea exports to the region.

Tea exports to the Middle East are about 46% of total tea exports of Sri Lanka showing significant exposure to the region while total exports to Israel ranged about 2% of total exports in the recent past dominated by diamond exports, which accounted for around 80% of exports to Israel followed by tea.

Meanwhile, the imports from the Middle East as a region are dominated by petroleum products where in 2023, over 90% of crude oil and about 40% of refined petroleum was imported from Middle Eastern countries.

It said that a wider war could disrupt the import of crude oil and refined petroleum, increasing the import bill, widening the trade deficit.

Moreover, CBSL said that the direct impact of the Israel-Gaza war would be mainly on the diamond polishing industry of Sri Lanka.

The Middle East is also the largest labour migration destination and largest source of workers’ remittances to Sri Lanka which accounts for 53.7% of total remittances in 2023.

Further, CBSL said that a wider conflict in the Middle East could cause disruptions in shipping routes which could disrupt exports and supply chains.

“Sri Lanka could be impacted by the spillovers from global inflation, tighter monetary conditions, slowdown in tourism and global growth if there is severe escalation of conflicts,” CBSL said.