Sri Lanka’s export sector is bracing for fresh turbulence as the escalating conflict involving Iran and parts of the Middle East begins to send shockwaves through global trade, shipping and energy markets.

Though geographically distant from the conflict zone, Sri Lanka’s exporters are far from insulated. Industry leaders warn that higher freight costs, rising oil prices and increased trade risks could erode margins and disrupt key markets if hostilities intensify.

President of the National Chamber of Exporters of Sri Lanka, Indhra Kaushal Rajapaksa told The Island Financial Review that the situation is being closely monitored, as the export community is already feeling the early tremors of global instability.

“Sri Lanka may not be directly involved in the conflict, but we are deeply integrated into global supply chains. Any disruption in the Middle East immediately translates into higher costs and operational uncertainty for our exporters,” Rajapaksa said.

A major concern is the vulnerability of critical maritime corridors such as the Strait of Hormuz and the Red Sea, through which a significant share of global trade and oil shipments pass. Shipping lines have begun rerouting vessels and imposing emergency risk surcharges amid mounting security threats, while insurers are reassessing risk exposure in the region.

“Freight costs had only recently begun stabilising after the pandemic-era disruptions. Now, with vessels avoiding high-risk zones and insurers raising premiums, exporters are once again facing unpredictable shipping expenses,” he noted.

For time-sensitive exports such as apparel and perishables, delays could undermine Sri Lanka’s hard-earned reputation for reliability in competitive markets.

Exporters fear that prolonged instability could trigger sustained freight rate hikes similar to those witnessed during previous global disruptions.

The conflict has also driven global oil prices upward on fears of supply disruptions and shipping bottlenecks. Given that the Middle East accounts for a substantial share of global crude oil output, even perceived threats to supply have immediate price implications.

For Sri Lankan exporters, higher oil prices translate directly into increased fuel, electricity and transportation costs. Manufacturing sectors such as apparel, rubber products, plastics and food processing are particularly vulnerable, as energy forms a core input cost across operations.

“Energy is a fundamental cost component in nearly all export industries. When global oil prices rise, the impact cascades through logistics, production and even raw material pricing,” Rajapaksa explained, warning that sustained high energy costs could squeeze already thin margins.

Beyond cost pressures, the Middle East remains a crucial destination for Sri Lankan exports, especially tea and food products. Around 25 percent of Sri Lanka’s tea exports are shipped to Middle Eastern markets, making the region strategically important for the plantation sector.

“The Middle East is not just a transit route; it is a major market. If economic activity slows in those countries, or if banking and payment channels become complicated due to the conflict, our exporters will face direct consequences,” he cautioned.

War conditions also elevate trade finance and insurance risks. Cargo insurance premiums are climbing, and banks may adopt a more cautious stance toward trade credit involving affected regions.

Exporters could face payment delays, tighter financing conditions and higher compliance requirements, raising the overall cost and complexity of doing business.

This comes at a sensitive time for Sri Lanka’s economy, which is navigating recovery. Higher global oil prices would widen the import bill, potentially exerting pressure on the rupee and fuelling domestic inflation. While currency depreciation can sometimes enhance export competitiveness, rising input costs may offset any exchange rate advantage.

Despite the challenges, he pointed to potential opportunities if Sri Lanka responds strategically. As global buyers seek to diversify supply chains away from unstable regions, Sri Lanka could position itself as a reliable sourcing hub for apparel, rubber-based products, processed foods and value-added agricultural goods.

“In every global disruption there are risks, but there are also opportunities. If Sri Lanka strengthens trade facilitation, improves logistics efficiency and ensures policy consistency, we can attract buyers looking for stable alternatives,” he said.

He stressed that resilience and preparedness would be critical in the weeks ahead, as exporters closely watch developments in the Middle East and global energy markets, aware that distant conflicts can swiftly reshape local economic realities.

By Ifham Nizam