With the US mid-term elections and Israel's October election compressing risk premiums, Sri Lanka can expect to see a more favourable macroeconomic environment with the lowering of oil prices, eased pressure on the rupee, and room for a rate cut; conditional upon the sustained progress of restoring access to the Strait of Hormuz, a recently released report by First Capital Research said.

Referring to last week's Democratic party sweep of House and Senate seats in the US mid-terms, and the hung parliament in Israel in late October, FCR noted: "The combination of a Democratic sweep in Congress and a hung parliament in Israel has begun to unwind geopolitical risk premia. For Sri Lanka, this creates a more supportive macro backdrop through lower oil prices, reduced pressure on the rupee, and greater scope for interest rate easing, provided progress toward reopening the Strait of Hormuz is sustained."

Despite the backchannel mediation carried out by Qatar, the progress on negotiations remain in a deadlock with both sides discussing core conditions. Analysts monitoring the US administration note that with the heavy Republican party losses at the mid-terms last week, there remains the possibility of the administration escalating military action in the region before the new Congress takes office in January.

FCR also noted that since the pre-election peak of Brent crude – which had traded at $ 117/bbl and had fallen by 20% to trade at $ 93/bbl – markets are moving in the direction of pricing in lower probability of Middle East escalations, following the Democratic sweep in the US, and the hung parliament in Israel, though negotiations remain deadlocked.

Nonetheless, the unit noted that the de-escalation narrative hinges on the progress particularly made on the Hormuz negotiations. "A prolonged Israeli coalition impasse, renewed tensions between the White House and Congress, or delays to a Hormuz agreement could sustain geopolitical risk premia and slow the expected decline in oil prices," the unit warned.

The unit also noted that developments on the Israeli coalition talks will determine whether policy shifts towards de-escalation or remains constrained by political uncertainty.

FCR further noted that the US Government's recent implementation of the 10% Section 301 tariff also bodes well for Sri Lanka's $ 3 billion export market, relative to its regional peers. This, along with lower US yields, a weakening dollar, improving sovereign credit metrics and foreign exchange reserves, signify conditions favourable for continued participation in government securities and equities.

Sri Lanka's gross official reserves reached approximately $ 7.09 billion at the end of October 2026, according to the Central Bank of Sri Lanka.

Meanwhile, domestically, Sri Lanka awaits its CBSL Monetary Policy Review on 20 November.