Middle East conflict could hit Lanka’s remittances, oil price, tea exports and inflation

The ongoing conflict in the Middle East could negatively affect remittances to Sri Lanka, according to CT Smith Stock Brokers in their report, Ripple Effects of the Widening Middle East Conflict. The report also warns of potential impacts on tea exports, tourism, and inflation due to oil price shocks.

“Although remittance growth has been strong in recent months, regional instability could cause overseas workers to temporarily retain funds as precautionary savings, slowing inflows and affecting the current account performance,” the report noted.

Worker remittances remain Sri Lanka’s largest source of foreign currency, exceeding US$8 billion (+23% year-on-year) in 2025. This growth has been driven by a consistent outflow of Sri Lankan workers for foreign employment over the past four years, averaging approximately 309,108 persons annually.

The Middle East accounted for 80% of total remittance inflows in 2025. Of the 310,915 workers who went abroad, 76% were skilled while 24% were unskilled laborers.

Sri Lanka’s tea industry, heavily dependent on the Middle Eastern market, is also expected to face headwinds. Around 52% of the country’s tea exports are concentrated in this region, leaving the industry exposed to geopolitical shocks.

Global oil price fluctuations pose another major risk to the local economy. Sri Lanka relies heavily on fuel imports, which accounted for 19% of the total import bill in 2025, down from 28% during the oil price highs of 2022–2023. Brent Crude prices reached as high as US$138 per barrel in early 2022, and during 2022–2023, oil traded in the range of US$79–81 per barrel.

CT Smith Stock Brokers emphasized that a sustained Middle East conflict could once again disrupt remittances, tea exports, and energy costs, posing risks to Sri Lanka’s foreign currency inflows, inflation trajectory, and overall economic stability.