Sri Lanka’s economic recovery faces renewed pressure from the Middle East conflict, with rising fuel costs, disrupted supply chains and potential shocks to remittances threatening to reverse gains in inflation and household welfare, according to a new assessment by the World Food Programme (WFP) reported by Daily FT.
The WFP said volatility in the Gulf is transmitting across energy, food, agriculture and external earnings channels, with direct implications for inflation, balance of payments stability and household consumption.
Domestic fuel prices have already risen 33% to 40% amid global supply disruptions, pushing up electricity tariffs and transport costs while crude hovers at a four-year high. Sri Lanka imports 63% of its energy and relies on oil for nearly 40% of supply, meaning the pass-through to retail prices is immediate and broad.
Higher energy and fertiliser costs are raising production expenses and import bills, the agency said, with global prices of staples including wheat, corn, rice and vegetable oil climbing. Sri Lanka imported $2.5 billion worth of food in 2025 alone, underscoring its exposure to external price shocks. Disruptions to the Strait of Hormuz, which handles around 30% of globally traded fertiliser, add further risk to a farming sector that employs 26% of the workforce and imports up to 100% of its urea.
On the external front, around 80% of Sri Lanka’s remittances originate from the Gulf. Any prolonged instability would weaken household incomes, pressure the rupee and strain foreign reserves. Tourism — which contributed up to 9.4% of GDP in 2024 — is also showing early signs of impact, with Middle Eastern airline capacity falling in March and arrivals easing.
The WFP noted that household food security remains fragile following Cyclone Ditwah, with food insecurity having risen sharply in late 2025 before partial recovery in early 2026. The recent 30–35% increase in domestic fuel costs threatens to reinforce inflation and reverse those gains, the agency said, and called for close monitoring and targeted policy responses for daily wage earners and estate workers most exposed to the shock.
