• Deputy Minister warns of escalating tensions and potential Strait of Hormuz closure
• “Tea for oil” deal and vital tea exports to Middle East face uncertainty

The long-running impact of the Israel-Iran conflict may be seen in the Sri Lankan economy in a month’s time, Trade, Commerce, Food Security and Co-operative Development Deputy Minister R. M. Jayawardena said, speaking to The Daily Morning Business.

“The way things are going, we can see the impact of this conflict affecting us in a month’s time. We do not know how significant the impact might be on Sri Lanka as of yet - but we have identified this as cause for concern,” Jayawardena said, referring to the continued exchange of air strikes in the two Middle-East nations.

Though United States President Donald Trump claimed that both nations had agreed to a ceasefire brokered by America and Qatar on Monday (23), fighting between the two nations entered its 12th day, as Iranian state media refuted claims of violating the ceasefire, levelled by the Israeli Defence.

After the US launched airstrikes on three of Iran’s nuclear facilities over the weekend, the Iranian government moved to close the Strait of Hormuz, the sea route through which 21%- or roughly one-fifth of global oil and gas imports pass through.

The US Energy Information Administration (EIA) reports that roughly 14.2 million barrels of crude oil and 5.9 million barrels of refined petroleum products traverse the Strait daily.

Urging China to mediate in the closure of the 33-mile shipping chokepoint, US Secretary of State Marco Rubio speaking to Fox News, an American broadcast channel, asked China to “call them out”, as the trade giant depends on the Strait for its oil imports.

According to Q1 data, China imported 5.4 million barrels of crude oil on a per-day basis, via the corridor. The data also shows that India imported 2.1 million barrels of crude oil on a daily basis, through the corridor.

Earlier last week, the CEO of Shell warned of the precarity the conflict may have on global trade - in the event the Strait would face closure, expressing to The Guardian that the global group of energy and petrochemical companies had contingency plans in case the conflict were to disrupt flows.

“We too cannot focus on one sector at a time either,” Jayawardena said, referring to the considerations the Ministry is making in order to prepare Sri Lanka for a sizable impact stemming from the volatile nature of the conflict, and obstructed trade.

He added that Sri Lanka’s continued benefits from the tea for oil agreement - a barter agreement between Sri Lanka and Iran meant to help Sri Lanka set off its debt from previous oil purchases, through the export of tea sits in uncertainty too.

“There are of course uncertainties around the tea for oil agreement bringing in the same benefits for Sri Lanka in the future.” Iran has historically been among the largest export destinations for Ceylon tea’s low growns.

The agreement was seen as beneficial for Sri Lanka at the time of its signing, as it eased pressure on the country’s balance of payments and its long-endured foreign exchange crisis. Auction prices of tea began bounding when the tea-for-oil barter mechanism piqued demand from other nations as well, prompting an expansion in exports.

“To speak on it with certainty, a full assessment of the situation, which has been changing day by day, is required,” Jayawardena concluded.