Colombo: Israel and Iran war poses risks to stability and economic recovery

The Middle East accounts for 25% of total tea exports. And 60% of private remittances come from the 1.5 million migrants working in the region. A 5% drop in orders could cost up to million a year. Attention is focused on the Strait of Hormuz for possible blockades by Tehran.

Colombo (AsiaNews) - Growing geopolitical tensions in the Middle East, the latest of which is the war that Israel launched against Iran a week ago, are having far-reaching consequences in many Asian countries, as is currently the case in Sri Lanka. The island is in a delicate position, especially in economic terms, which could have a significant impact on the country's financial stability and fragile recovery in recent times. Twenty-five percent of total tea exports are destined for the “West Asia” region; in addition, 60% of private remittances come from Sri Lankan migrants working in the Middle East. A 5% drop in orders could cost Colombo's economy around million a year, in addition to the climate of uncertainty and fears for the safety of the approximately 20,000 expatriates in Israel, as well as the approximately 50 who live and work in Tehran.

Meanwhile, the government has accepted the directives of the Israeli Population and Immigration Authority (Piba) and postponed, at least temporarily, the sending of workers to Israel due to the current situation in the region. The Jewish state's international airports are currently not operating at full capacity, and the government has decided to close the main airport, Ben Gurion International Airport, “until further notice,” leaving over 50,000 Israeli travelers stranded abroad. As a result, all work transfers from Sri Lanka to Israel have been suspended.

According to senior officials from the Ministry of Foreign Affairs, Employment and Tourism in Colombo, the suspension affects both newly selected job seekers and those who came to Sri Lanka for a short period with the aim of returning to Israel to seek employment. Meanwhile, in line with Section 39 (1)(b) of the State Employment Bureau (SLBFE) Act No. 21 of 1985, the agency states that it will not be able to register new applicants for employment in the Jewish state until further notice.

Economists Kasun Rajapakse and Samadhi Alahakoon explain to AsiaNews that “the recent escalation between Israel and Iran has created uncertainty in global markets, making Sri Lanka's economy susceptible.” According to the national budget, there is a significant dependence on exports, with the Middle East accounting for 25% of Sri Lanka's tea exports. A 5% drop in orders could cost the country up to million a year.

"Currently, 1.5 million Sri Lankans work in the Middle East and contribute about 60% of total remittances, with .2 billion a year. Therefore, any decrease in this flow of money represents a risk factor, experts warn. If the conflict persists, it could lead to job losses, and a 10% drop in private remittances could reduce foreign exchange reserves by 0 million. The price of oil and gold has skyrocketed after Israel's attacks on targets in Iran. The escalation of the conflict in the heart of global oil production, they conclude, has caused “a sharp rise in prices, with Brent rising more than 7% after news of the attacks, briefly exceeding per barrel and reaching its highest level since April this year.”

According to geopolitical analysts Sampath Dissanayaka and Iroshi Mendis, “potential disruptions in the Strait of Hormuz could double shipping rates and send crude oil prices soaring.” If Tehran blocks the passage, they warn, as already threatened by Pasdaran commander Sardar Esmail Kowsari, there will be an immediate impact on global crude oil prices with “significant economic turmoil” worldwide. Furthermore, an attempt to close the Strait would also trigger intervention by foreign powers, especially regional powers among the Arab Gulf states aligned with the United States and rivals of Iran. Intervention would therefore be necessary, as the consequences for countries heavily dependent on oil and natural gas would be “immense.” Finally, amid escalating tensions in the Middle East, investor forecasts are also becoming highly negative due to fears of potential global economic disruption.