Seldom has the world witnessed such polarization and volatility mixed with uncertainty even more than in the 1990s with the collapse of Berlin Wall leading to the unification of West and East Germany, dissolution of the then Soviet Union known as Perestroika, First Gulf War and rapid expansion of NATO, amongst others. During this period, the undersigned was researching these subject matters in 1990s in Graduate School in the US, but the global community, mostly, was unaware or least disturbed as the impingement did not transcend to the entire world as well as the internet and social media were only at embryonic stage.

The undersigned recollects that the only issue which perturbed the global community, including Sri Lanka, was the First Gulf War of 1990s as it impacted, yet again, the price of oil. Only other instances that the world experienced such uncertainty or polarization after WW II were the two Oil crises of 1970s, Vietnam and Korean War including the Second Indochina War of 1960s, financial crisis of 2008, September 11th Attacks in US, Arab Spring of 2010 and of course the Cuban crisis of 1962. Most of these events occurred at the peak of the Cold War but the crisis of today is totally and on a tectonically different dimension.

Strait of Hormuz and nature of War:

It is none other than Energy known as Oil and to an extent Gas of Middle East with the rupture and blockade of Strait of Hormuz by Iran due to the ongoing Iran-Israel-US conflict. Envision, the 12-day “Operation Midnight Hammer” of June 2025 of which the US bombed Iran did not make much notice or breakeven news mostly due to the swiftness and precision of the US as well as Strait of Hormuz was not strangled, thus the flow of oil was not affected. In this particular occasion, much discussed and debated subjects in geo-political and geo-economic discourse as Ukraine Conflict and Palestine-Israel Conflict were entirely eclipsed and overwhelmed not necessarily by the Iran War or its destruction of both property and human lives but due to a single word i.e. Oil, or rather “demolition” of flow of 20% of oil and gas via the seminal Strait of Hormuz.

Ironically, a scarcely visible and little-known Strait of Hormuz unlike the Suez Canal, could negatively reverberate and resonate from Seoul, Soweto to San Francisco as no other single natural endowment or commodity. This is more impactful and influential to the global economy than vital agricultural commodities such as corn, wheat or rice. The noted Australian political scientist, Geoffrey Blainey, stated quote “Wars can only occur when two nations decide that they can gain more by fighting than by negotiating. War can only begin and continue with the consent of at least two nations” unquote. If one scrutinizes the military conflicts between and amongst nations including both the World Wars as well as a number of bloody and ruthless conflicts since the Roman times, this geo-political proposition would be true in almost in all the conflicts.

Perilous nature of this Conflict both to Economy and World Order:

In this conflict, what was most terrifying or even “intimidating” to the global community was the geography, topography and geomorphology of Iran. That said, Iran has already seized and blockaded, probably, the most crucial chokepoint of Hormuz and has also threatened to block the 18-nautical mile Bab-el-Mandeb Strait, which connects Red Sea to Gulf of Aden and extends to Indian Ocean. The Strait accounts for nearly 10%-12% of total traded seaborne oil, which mostly power the economies of Asia. This could occur since the Houthi rebels of Yemen, which supports the regime of Iran, has formally involved in the hostilities and fired missiles and other attacks, thus making this particular Strait too, literally and metaphorically, unusable for vessels. The end result could be the unprecedented surge of the price of oil to well over USD 140 a barrel, which could cripple the global economy, mostly the developing countries highly depended on oil and gas such as Sri Lanka. Even the global community was ‘elated’ of the two-week ceasefire but it is by no means a durable permanent solution under any circumstances.

As Richard Hass, President emeritus of the premier geo-political institution of the world i.e. Council on Foreign Relations (CFR) and Envoy, expressed his deep concern as well as fear on CNN program titled “Global Public Square” (GPS), one of the most esteemed weekly programs on international affairs hosted by Fareed Zakaria of the current and dynamic developments in Middle East. Haas accentuated that he was most worried that the eight-decade world order, shaped, fashioned and evolved after the WWII in 1945, could be ruptured and fragmented as never before, thus provoking and engendering global instability and disequilibrium, if the conflict was not permanently resolved on an exigent manner by the global community.

Risk of Kindleberger Trap and response by Sri Lanka:

These are profound geo-political observations and conjectures as well as the undersigned is of belief that such a scenario could lead to a “Kindleberger Trap”. This thesis was popularized by much noted Dean of Harvard Kennedy School, Joseph Nye, which underlines that global volatility and fluidity could occur when a dominant power in the comity of nations declines to extend the so-called global public good and emerging power/s is not in a position to assume such a leadership role or global stewardship. This hypothesis could alarm any nation from least developed to most advanced since the genesis of the WWI and WWII as well as the Great Depression of the 1930s could be detected or sketched, directly or indirectly, to this geo-political theory or trap.

It is ironical to note that apart from the property and human lives which were, unfortunately, lost due to the six-week conflict, one of the greatest setbacks or “victims’’ was none other than the application or recognition of International Law. It was most commendable that Sri Lanka applied and upheld the international and humanitarian law, to the letter and spirit, to rescue the crew of bombed Iranian vessel named IRIS Dena on the EEZ of Sri Lanka, without jeopardizing the decidedly delicate geopolitical equilibrium.

Most efficacious Stratagem was execution of Diplomacy and Negotiations:

As the undersigned drafts this article, it is most disquieting to note that the world is involved in three major conflicts, with at least one of them of the conflict is a nuclear power, as well as a number of other interstate and intra-state conflicts, which are reported or focused by the media and political analysts infrequently if not rarely. As Croesus, who was the last King of Lydia (today known as Turkey), enunciated these judicious words vis-à-vis war, during the era Buddha was preaching Buddhism in India and military strategist, Sun Tzu, was preaching Art of War to Emperors of China. Croesus stated quote “No one is so foolish as to prefer war to peace, in which, instead of sons burying their fathers, fathers bury their sons” unquote. It is equally intriguing to note that one of the top most officials of Carter Administration, Zbigniew Brzezinski, stated that it is of the US interest to engage Iran in serious negotiations on both regional security and nuclear challenge it poses.

Concluding remarks with Observations:

These observations must have been pronounced since the late Mohammed Reza Pahlavi better known as Shah, on an interview with one of the most trusted investigative journalists of the time, Mike Wallace, on CBS “60 Minutes” in 1974, stated that Iran was a proud country with a very long and rich history and civilization, which wished to co-exist in peace, but if war was imposed on Iran, it would not hesitate to respond. He further obliquely implied that Strait of Hormuz was indispensable to the world economy. These were stated well over five decades ago.

It would be befitting and politic to conclude with the sapient and sage words of one of the greatest negotiators and statesmen ever to walk on earth in the last Century, Nelson Mandela, quote “If you want to make peace with your enemy, you have to work with your enemy. Then the enemy becomes your partner” unquote. Final parting stratagem is none other than the execution of diplomacy and negotiations as President Kennedy stated in November 1961 at the historic “University of Washington Speech” quote “Diplomacy and defense are not substitutes for one another. Either alone would fail.” unquote.

Author is a former career Ambassador, Professor and Examiner of International Economics with specialization on Geo-economics and Geo-politics, Board Member, and Strategic Advisor. He earned the MBA from San Francisco State/University of California, PhD from Indian Institute of Technology (IIT) Delhi and is a Senior Fellow at Harvard. He could be reached on mendissaj24@gmail.com

By Prof. Saj U. Mendis, PhD

CSE trading was in bullish mode yesterday powered by a strong banking and financial sector performance and on going economic stabilisation in the county.

Both indices moved upwards, turnover showed a healthy level and both retail and institutional investor participation registered a positive trend.

The All Share Price Index was up by 327.49 points, while the S and P SL20 rose by 76.22 points. Turnover stood at Rs 4.96 billion with four crossings. Those crossings were: JKH 7 million shares crossed to the tune of Rs 142.8 million and its shares traded at Rs 20.40, Sampath Bank 600,000 shares crossed for Rs 90 million; its shares sold at Rs 150, Hayleys 108,000 shares crossed to the tune of Rs 40.6 million; its shares sold at Rs 226 and LOLC Holdings 54000 shares crossed for Rs 30 million; its shares fetched Rs 560.

In the retail market companies that mainly contributed to the turnover were; JKH Rs 354 million (20.7 million shares traded), Ceylon Land and Equity Rs 346.6 million (29 million shares traded), Softlogic Capital Rs 255 million (14.7 million shares traded), Softlogic Holdings Rs 227 million (15 million shares traded), Asiri Surgical Hospitals Rs 157.3 million (8.1 million shares traded), Softlogic Life Insurance Rs 152.7 million (1.6 million shares traded) and Colombo Land and Development Rs 151 million (2.2 million shares traded). During the day 242.7 million share volumes changed hands in 41143 transactions.

It said that manufacturing sector counters, especially JKH, led the market, while financial sector counters, especially Softlogic Capital performed well. Softlogic related companies also performed well.

Meanwhile,Hatton National Bank said it had listed 4,249,706 ordinary voting shares and 1,251,268 ordinary non-voting shares after a scrip dividend.

Yesterday the rupee was quoted at Rs 315.45/75 to the US dollar in the spot market, from Rs 315.55/65 Wednesday, dealers said, while bond yields were dropping amid cautious optimism over US-Iran and Israel-Lebanon peace talks and a moderation in global oil prices.

By Hiran H Senewiratne

Sri Lanka must brace for a more volatile global economic environment and stay firmly committed to ongoing reforms, an independent economic analyst warned, following fresh concerns raised by the International Monetary Fund over a possible global downturn.

The IMF, in its latest World Economic Outlook, has cautioned that escalating conflict in the Middle East, particularly involving Iran, could darken the global outlook and even push growth toward near-recession levels. A prolonged scenario could trigger a sharp spike in energy prices, with far-reaching consequences for import-dependent economies like Sri Lanka.

“The global environment is becoming more uncertain, and Sri Lanka must be prepared. The country has made significant progress since its worst economic crisis, but it remains vulnerable to external shocks, especially through energy markets,” the analyst told The Island Financial Review.

“Sri Lanka, which relies heavily on fuel imports, would face immediate pressure on its trade balance and foreign reserves if global oil and gas prices surge. Such a development could also reverse the recent spell of deflation, reintroducing inflationary pressures at a time when domestic demand remains fragile. Deflation offered some relief at that time, but it also reflected subdued economic activity,” the analyst explained. “If inflation returns due to higher import costs rather than stronger growth, the Central Bank will face a difficult balancing act,” he said.

The potential fallout extends beyond energy. A slowdown in global growth could dampen Sri Lanka’s export performance, particularly in key sectors such as apparel and tea, while also affecting tourism , one of the country’s main sources of foreign exchange.

“Tourism has shown encouraging signs of recovery, but it is highly sensitive to global economic conditions and geopolitical instability,” the analyst noted. “Likewise, export demand could weaken if consumers in major markets tighten spending. If fertiliser supplies are disrupted, it could lead to food vulnerability”.

Referring to fiscal challenges, he said: ” The government is currently pursuing consolidation under an IMF-supported programme, but rising energy costs could increase pressure for subsidies or social spending, potentially complicating budget targets. Remittances, another critical inflow, could come under strain if economic conditions in the Middle East deteriorate, affecting Sri Lankan workers employed in the region.”

Despite these risks, the analyst noted that Sri Lanka is better positioned today than during its 2022 economic crisis. Improved foreign reserves, progress in debt restructuring, expanded revenue streams and cost-reflective utility prices have strengthened the country’s economic footing.

“Preparedness will be critical in the current environment. Sri Lanka must stay the course on reforms, strengthen its financial buffers, and focus on diversification of its economic base to better withstand potential global shocks,” the analyst concluded.

By Sanath Nanayakkare