By P M Amza –

P M Amza

The sinking of the Iranian naval vessel IRIS Dena in the Indian Ocean south of Sri Lanka—outside the island’s territorial waters but within a distance that allowed Sri Lanka to conduct search-and-rescue operations—has brought the expanding confrontation between the United States and Iran close to Sri Lanka’s maritime neighbourhood. The episode illustrates how quickly geopolitical rivalries among major powers can spill into the sea lanes surrounding smaller states.

Sri Lankan authorities assisted in search-and-rescue efforts for survivors, reflecting the country’s responsibilities as a maritime state situated along some of the world’s busiest shipping routes. Although the incident occurred outside Sri Lanka’s territorial waters, its proximity underscores how developments in the wider Indian Ocean can quickly engage Sri Lanka’s maritime institutions and strategic attention.

For Sri Lanka, the significance of such developments extends well beyond strategic symbolism. The Indian Ocean is the country’s economic lifeline. Sea lanes passing south of the island carry a large share of global energy shipments and container traffic between the Middle East and Asia. When instability enters this maritime space, the consequences are felt not only in security calculations but also in trade flows, energy costs and economic stability.

According to international energy agencies, nearly 40 percent of the world’s seaborne oil trade moves through the Indian Ocean, particularly along routes connecting the Persian Gulf with East Asia.

Sri Lanka’s economic geography is deeply tied to these maritime routes. The Port of Colombo, one of the busiest container ports in South Asia, handled 8.29 million TEUs of container traffic in 2025, the highest volume ever recorded in its history.

Much of this consists of transshipment cargo linked to regional supply chains, particularly trade serving the Indian subcontinent. Any disruption or heightened security risk in nearby sea lanes therefore carries implications not only for global shipping but also for Sri Lanka’s port-based services economy.

Sri Lanka’s Historic Call for an Indian Ocean Zone of Peace

Sri Lanka has confronted such strategic anxieties before. In the early 1970s, under the leadership of Sirimavo Bandaranaike, Sri Lanka placed before the international community a proposal that the Indian Ocean should be declared a Zone of Peace.

Consistent with its foreign policy orientation within the Non-Aligned Movement, Sri Lanka sought to promote the Indian Ocean as a region where great-power rivalry would be restrained and smaller states could pursue economic development without the pressures of military competition.

The initiative aimed to prevent the militarisation of the region and protect the maritime environment upon which many developing littoral states depended. The proposal gained international recognition when the United Nations General Assembly adopted Resolution 2832 (XXVI) in 1971, formally declaring the Indian Ocean a Zone of Peace.

At the time, the Cold War had begun extending into the Indian Ocean as major powers expanded their naval presence and military facilities. For smaller coastal states, this raised concerns that their maritime environments could become arenas of geopolitical confrontation. Sri Lanka’s proposal therefore reflected the aspirations of many developing nations to ensure that the region remained a space for peaceful navigation and economic cooperation rather than military rivalry.

Although the initiative received strong support among members of the Non-Aligned Movement, Cold War rivalries prevented its full implementation. Nevertheless, the concept of the Indian Ocean as a zone where military confrontation should be restrained became an enduring part of Sri Lanka’s diplomatic legacy.

Why the Indian Ocean Is Becoming the Next Strategic Theatre

More than five decades later, the Indian Ocean has again emerged as one of the world’s most strategically contested maritime regions.

First, the ocean carries some of the most critical sea lanes of the global economy. Nearly two-thirds of global oil shipments and one-third of the world’s bulk cargo trade pass through the wider Indian Ocean region. Chokepoints such as the Strait of Hormuz, the Bab el-Mandeb and the Malacca Strait connect energy-producing regions in the Middle East with industrial centres in Asia.

Second, the region has become a focal point of major-power competition. The expanding naval presence of the United States, China and India reflects the strategic importance attached to safeguarding maritime trade routes and projecting influence across the broader Indo-Pacific.

Third, the Indian Ocean is witnessing the gradual militarisation of maritime infrastructure. Strategic facilities such as Diego Garcia illustrate how the region has evolved from a commercial corridor into a significant strategic space.

Finally, the growing prominence of the Indo-Pacific strategic framework has placed the Indian Ocean at the centre of global strategic thinking. Naval exercises, maritime security initiatives and defence partnerships increasingly frame the ocean as a critical link connecting the world’s major economic centres.

For Sri Lanka, located along these vital sea lanes, this evolving environment creates both opportunities and vulnerabilities. The island’s geographic location has long been described as a maritime crossroads, but intensifying geopolitical rivalry means that the surrounding waters are increasingly exposed to tensions among larger powers.

Economic Costs of Conflict for Sri Lanka

The economic implications of such developments could be substantial. The most immediate impact is likely to be felt through global energy markets. Any escalation involving Iran tends to trigger increases in oil prices due to fears of supply disruptions or risks to tanker traffic.

Sri Lanka imports nearly all of its petroleum requirements, with the annual petroleum import bill typically fluctuating between USD 4–5 billion, depending on global oil prices. Even a modest increase of USD 10 per barrel in crude prices could therefore add hundreds of millions of dollars to the country’s import costs.

Higher fuel costs ripple across the economy. Transport expenses rise, electricity generation becomes more expensive and production costs increase across multiple sectors. These pressures ultimately translate into higher consumer prices and a widening trade deficit.

The maritime dimension of Sri Lanka’s economy could also face new pressures. Heightened tensions in the Indian Ocean may increase war-risk insurance premiums for vessels operating in the region. For a country whose more than 90 percent of trade moves by sea, higher freight and insurance costs could affect both imports and exports.

Tourism represents another vulnerability. In 2025 Sri Lanka recorded more than 2.36 million tourist arrivals, generating USD 3.22 billion in tourism earnings, making tourism one of the country’s major sources of foreign exchange.

Even if Sri Lanka itself remains peaceful, headlines about naval confrontation near the island could influence traveller perceptions and booking decisions.

There may also be indirect effects on Sri Lanka’s overseas workforce. Worker remittances reached approximately USD 8.08 billion in 2025, making them the country’s largest source of foreign exchange.

More than one million Sri Lankans are employed abroad, many in the Middle East. Any prolonged instability in that region could affect labour markets and economic activity in host countries, potentially influencing remittance flows.

Taken together, these factors illustrate how geopolitical tensions in distant theatres can quickly translate into tangible economic pressures for a small island economy.

A Legacy Worth Revisiting

The latest naval confrontation in the waters south of Sri Lanka underscores a deeper reality: the Indian Ocean is no longer a distant strategic arena but an active theatre of global power politics. For Sri Lanka, whose prosperity depends on maritime stability, the stakes are particularly high.

The country’s historic advocacy of an Indian Ocean Zone of Peace reminds us that smaller states have long sought to promote restraint and cooperation in these waters. While geopolitical circumstances today differ from those of the Cold War, the underlying principle remains relevant.

Sri Lanka may not possess the military capacity to shape the strategic behaviour of major powers. Yet it retains the diplomatic tradition and moral authority to advocate for maritime stability and cooperative security in the Indian Ocean.

More than half a century ago, Sri Lanka warned that great-power rivalry should not turn the Indian Ocean into an arena of confrontation. For Sri Lanka, the Indian Ocean is not simply a strategic space—it is the maritime highway that sustains the nation’s economy. Preserving stability in these waters is therefore not only a matter of diplomacy, but of national necessity.

*The author is former Sri Lanka Ambassador to EU, Belgium. Turkey and Saudi Arabia and former Additional Secretary Ministry of Foreign Affairs