How the Middle East War Is Burning Through Sri Lanka's Fuel Security and Women-Led Enterprises

Oil at $110 and rising. Cooking gas scarce. A country that spent $4.35 billion on fuel imports in 2024 now faces a supply shock it has never structurally prepared for — and the women running Sri Lanka's micro-enterprises will bear the sharpest part of the cost.

In a small room behind a kitchen in Kurunegala, a woman named Priyanka runs a home bakery. She wakes before five in the morning, turns on a gas oven, loads trays with bread and short-eats, and waits for her nephew to load the delivery tuk-tuk that will reach three neighbouring villages by eight. Her entire operation — the oven, the tuk-tuk, the refrigerator that keeps her ingredients fresh — runs on fuel. She does not know the price of Brent crude. She has never heard of the Strait of Hormuz. But when a war broke out across the ocean and oil prices surged past USD 110 per barrel in early March 2026, Priyanka's cost of gas rose by thirty percent in a week. Priyanka is not an outlier. She is the face of an economic reality that Sri Lanka's macro-level discussions on geopolitical risk consistently fail to bring into focus: the two hundred thousand women who run micro and small enterprises in the informal and semi-formal economy are among the most exposed citizens in the country to the fuel shock that a prolonged Middle East war is now transmitting with escalating speed.

Sri Lanka's fuel dependency is structural, extensive, and historically underestimated as a strategic vulnerability. The country spent over USD 4.35 billion on fuel imports in 2024 — accounting for roughly 21.5 percent of total merchandise imports — even after a 7.4 percent year-on-year decline driven by reduced crude and coal purchases. Sri Lanka has no commercial oil production. Its sole refinery, the aging 50,000-barrel-per-day Kelaniya facility, processes crude imported almost entirely from Gulf producers, with the UAE alone supplying USD 766 million worth of crude in 2024. The country consumes approximately 92,000 to 115,000 barrels of oil per day, and fuel imports have historically consumed between 27 and 50 percent of export earnings across different price environments — a structural drag on the balance of payments that has never been resolved through sustained energy policy action. This is the country that now stands in the path of the largest oil supply disruption in recorded history.

The Middle East conflict's transmission into Sri Lanka's fuel economy operates through two immediate channels: price and availability. On price, the mechanism is straightforward and already unfolding. The partial closure of the Strait of Hormuz — through which roughly 20 percent of global oil and a significant share of liquefied natural gas transits daily — has pushed Brent crude from approximately USD 74–80 per barrel in early 2025 to over USD 110 in March 2026, with analysts warning the sustained disruption could push prices toward USD 130–145 if the conflict extends beyond four months. For Sri Lanka, every USD 10 increase in crude oil prices adds roughly USD 350–420 million to the annual import bill, straining foreign exchange reserves that, while improved from the catastrophic lows of 2022, remain far below the structural buffer the country needs. Economists at EconomyNext have noted that if oil prices sustain near the USD 120 mark, the annual fuel bill could swell to USD 4.5–5 billion, potentially triggering a balance of payments event — a risk the Central Bank Governor has acknowledged, while noting that current reserves offer more insulation than in 2022. The 'more insulation than 2022' framing deserves scrutiny: 2022 was a year in which the country ran out of fuel entirely.

Figure 1 — Brent Crude Price vs. Sri Lanka Inflation Rate 2018–2025 (dual axis)

"Every ten-dollar increase in crude oil prices adds USD 350–420 million to Sri Lanka's annual import bill. With Brent above $110 and rising, the arithmetic is unforgiving."

— Author's estimate based on CBSL fuel import data and consumption volumes

On availability, the disruption is already visible in ways that recall the darkest months of the 2022 crisis. The Atlantic Council's Phillip Cornell, reporting from Colombo in March 2026, described cooking gas shortages forcing restaurants and small businesses to shutter, petrol stations under distribution restrictions, and 'memories of the 2022 crisis still fresh' driving hoarding behaviour. The Ceylon Electricity Board, despite generating less than ten percent of its power from liquid fuel, relies on diesel generators as critical grid stabilizers — particularly during dry seasons when hydroelectric capacity falls. The disruption to fertilizer shipments threatened the March planting season. Supply chain shocks were immediate. This is the infrastructure on which Sri Lanka's informal economy — and specifically its women-led microenterprises — depends for survival, not merely for growth.

Table 1 — Fuel Price Shock Scenarios: Macroeconomic Impact on Sri Lanka (2026 Projections)

Assumptions: Fuel import volumes held broadly constant at 2024 levels (~92K bpd). Price scenarios modelled from Brent crude trajectory as of March 2026. LKR depreciation based on import demand elasticity and reserve adequacy ratios. Inflation estimates use fuel-to-CPI pass-through coefficient of 0.12–0.15 (CBSL 2022 crisis calibration). GDP impacts modelled using standard import-GDP sensitivity for Sri Lanka. All scenarios are indicative and subject to revision. 

The second-order transmission through electricity is perhaps less visible but economically more damaging over a sustained period. Sri Lanka's power tariffs have already undergone a wrenching 66 percent increase in 2023 as part of the IMF program conditionality, a shock from which households and businesses were only beginning to recover by late 2025. A new oil price surge that forces emergency electricity tariff adjustments — as would be almost inevitable under the moderate and severe scenarios in Table 1 — would impose another round of cost escalation on enterprises that have built their fragile business models around the assumption of stable utility bills. The SME sector, as EconomyNext has explicitly warned, 'is at risk of closure due to high electricity tariffs and borrowing costs, which could eventually lead to broader job losses across the formal economy.' For women-led enterprises, whose capital reserves are demonstrably thinner than male-owned counterparts — the formal financing gap for women-owned MSMEs is estimated at USD 695 million by the IFC — this represents an existential rather than merely operational challenge.

Sri Lanka's MSME sector constitutes the backbone of economic activity in ways that national accounts understate. There are approximately 1.1 million MSMEs operating across the island, accounting for over 90 percent of all enterprises, employing roughly 45 percent of the national workforce, and contributing approximately 52 percent of GDP as of 2024. Women own between 14 and 25 percent of formal MSMEs — with the IFC citing 14 percent of formal MSMEs and the We-Fi initiative noting that women own roughly a quarter of all SMEs — but the representation in the informal and micro sectors, where the fuel shock bites hardest, is substantially higher. Women's labour force participation in Sri Lanka has stagnated at a historically low 30.3 percent as of Q4 2024, with women constituting the majority of the 9.2 million working-age people outside the formal labour force. Many of these women are not inactive — they are running home-based enterprises, market stalls, and agricultural processing operations that the national accounts render partially invisible. Their enterprises cluster precisely in the sectors most exposed to fuel price shocks: food processing, retail trade, domestic services, transport, and agriculture.

The cost structure of a typical women-led rural micro-enterprise is, in normal times, already precarious. An illustrative home bakery might allocate 18 percent of operating costs to fuel and transport, 14 percent to electricity, and 35 percent to raw materials — leaving a net margin of 15 to 20 percent from which the owner must service any informal loans and fund household consumption. Under the moderate conflict scenario modelled in Table 2, fuel and transport costs rise to 27 percent of the cost base, electricity bills increase by 25 to 35 percent, and raw material costs inflate as input supply chains absorb the energy shock. The combined effect compresses margins to single digits. Under the severe scenario, costs exceed revenues for a substantial proportion of enterprises — crossing the break-even threshold and entering loss territory, as Figure 2 illustrates. This is not an abstraction. It is the point at which Priyanka's bakery closes.

Figure 2 — Women-Led MSME Cost Structure Under Fuel Price Shock Scenarios (% of operating costs)

Table 2 — Effects on Women-Led MSME Cost Structures and Income Levels by Scenario

Illustrative estimates based on ILO MSME impact assessment (2023), CBSL SME cost structure surveys, and author field estimates for rural enterprise operating profiles. The electricity bill increases are consistent with Table 1 tariff projections. Employment figures are rough orders of magnitude based on MSME employment shares and closure probability distributions.

 The gender dimension of this vulnerability is compounded by specific structural disadvantages that women entrepreneurs face in accessing the adaptive resources that could offset the shock. The IFC notes that only 17 percent of Sri Lankan women report having borrowed money through formal channels, with high interest rates, collateral requirements — particularly the inability to use land as collateral under the now-amended but historically discriminatory Land Development Ordinance — and lack of formal documentation being the most frequently cited barriers. In a shock environment, women who cannot access formal credit at reasonable rates turn to informal micro-credit facilities, which UN Women has described as 'largely unregulated exploitative' and carrying a 'legacy of targeting the most vulnerable women such as women heads of households, and war and military widows.' The debt trap that awaits a woman who borrows at 30 to 40 percent effective annual interest rates from an informal lender to keep her enterprise alive during a fuel shock is not merely a business failure — it is a household welfare catastrophe that ripples across her children's nutrition, education, and wellbeing.

"When a fuel shock hits, women-led enterprises face a double penalty: costs rise faster than revenues, and formal credit — the adaptive buffer — remains systematically out of reach."

— Policy Analysis Unit, March 2026

The historical record makes the trajectory disturbingly clear. During the 1973 and 1979 oil crises, import-dependent economies in South and Southeast Asia experienced sharp inflation, balance of payments contractions, and disproportionate hardship for informal sector workers — the majority of whom were women. During COVID-19, the ILO documented that women in Sri Lanka's informal sector experienced income losses nearly 40 percent greater than men, because their enterprises were more concentrated in sectors experiencing demand collapse and their access to government relief schemes was lower due to registration requirements. The 2022 crisis deepened this pattern: the UN's multi-dimensional crisis report noted that incidents of gender-based violence increased as economic stress mounted, women's shelters ran out of space, and service providers 'lacked fuel for field and home visits and were currently working only two days per week.' Inflation in July 2022 hit a recorded 54.6 percent, with food inflation at 81 percent. The women who queued for fourteen hours at petrol stations, as the UNDP recorded, were disproportionately the poor, the informal, and the female.

The policy response to a prolonged fuel shock on women-led MSMEs must therefore operate on three levels simultaneously. In the immediate term, the government must activate targeted income protection measures before enterprises close rather than after. This means extending the Central Bank's refinancing schemes — specifically the MSME concessional lending windows — with a crisis-rate facility offering working capital loans below market rates to fuel-exposed informal enterprises, with relaxed documentation requirements for women borrowers. It means deploying the National Enterprise Development Authority and the Small Enterprise Development Division's field networks to provide surge advisory support in fuel-crisis districts. And it means implementing emergency fuel allocation protocols that prioritize small productive enterprises — particularly those operating at the intersection of food security and income generation — over recreational private vehicle use, using the QR-code rationing system that proved effective, if imperfect, in 2022.

Over the medium term, the strategic imperative is reducing the structural fuel intensity of women-led enterprise. Solar panels cost roughly Rs. 180,000 to Rs. 250,000 for a basic home-enterprise installation — beyond the reach of most micro-enterprise owners without subsidized financing, but entirely viable under a revolving fund model with grant elements for women owners below a defined income threshold. LPG-to-biogas conversion programs in rural food processing districts offer another proven pathway. Electric three-wheelers — whose adoption was accelerating before the current crisis — can cut fuel costs by 60 to 70 percent for women running delivery enterprises, but require a parallel charging infrastructure investment in rural areas that has not kept pace with vehicle sales. The MSME support ecosystem also requires a fundamental redesign to reach women in the informal sector: digital registration pathways that do not require physical office attendance, mobile loan officers with gender sensitivity training, and collective enterprise models that pool purchasing power for inputs and spread the fixed costs of energy infrastructure.

In the longer term, Sri Lanka's fuel security and women's economic empowerment must be recognised as structurally connected policy objectives rather than separate silos. A country that deploys 21.5 percent of its import budget on fuel is a country whose women-led enterprises are perpetually one oil price shock away from closure. The 2022 crisis was supposed to be the inflection point — the moment of sufficient pain that demanded a systemic response. Instead, as Ceylon Today documented in February 2026, Sri Lanka consumed an 'import binge' across two decades while comparators like South Korea implemented binding renewable blending mandates and Indonesia deployed B30 biodiesel. The current conflict provides another, perhaps final, window for credible policy action: a binding national renewable energy target with MSME-specific components, a gender-disaggregated vulnerability index built into fuel crisis management frameworks, and sustained implementation of the Women's Empowerment Act of 2024 — which provides the legal scaffolding for gender equality in economic participation — to ensure that the next shock does not land on the same unprotected shoulders.

Priyanka's bakery should not close because someone fired a missile over the Persian Gulf. But it will, unless the systems designed to protect her are built before the crisis deepens rather than after. The window is narrow. The arithmetic, as always, is unforgiving.

Data sourced from: Central Bank of Sri Lanka; The Morning / CPC fuel import data; World Bank / IFC women MSME finance gap analysis; UN Women Sri Lanka; The Morning MSME sector report 2024; Atlantic Council energy dispatch March 2026; EconomyNext oil price analysis March 2026; ILO Labour Market Recovery Strategy 2023; OHCHR Sri Lanka economic crisis report July 2022; UNDP energy crisis analysis. Scenario projections are the author's estimates based on stated assumptions. This column is for policy and public discourse purposes.