Geopolitical fallout from the US-Israel strike on Iran has turned the Red Sea into a no-go zone, stalling 60-70% of Sri Lanka’s tea exports, filling Colombo warehouses to capacity and adding millions in weekly losses as insurers and shippers impose crippling war-risk surcharges.
Sri Lanka’s Ceylon Tea sector, the island nation’s largest export earner, is facing its most severe disruption in decades as escalating conflict in West Asia has effectively severed key shipping routes and insurance coverage for vessels bound for the Middle East and beyond.
Since the US and Israeli attack on Iran on February 28, 2026, the Red Sea and Strait of Hormuz – critical arteries for global trade – have become high-risk zones. What began as logistical delays has rapidly evolved into a systemic blockade, leaving packed tea containers stranded at the Port of Colombo and high-value shipments unsellable in traditional markets.
The $1.5 billion industry, which exported 257.44 million kilograms in 2025, now confronts a crisis that threatens not only immediate revenue but the long-term viability of one of Sri Lanka’s flagship commodities.
A Perfect Storm Hits Ceylon Tea
Sri Lanka’s tea exports have long relied on a diverse but concentrated customer base. West Asia, the Commonwealth of Independent States, East Asia and the European Union form the backbone of demand. Yet the current turmoil has directly hammered the Gulf and North African markets that absorb the bulk of shipments.
Anil Cooke, Managing Director of Asia Siyaka Commodities PLC, one of the island’s leading exporters, painted a grim picture. “When you add North Africa to that list of Middle Eastern countries and consider all the tea being shipped through the Red Sea, we’re talking of about a 60 to 70 per cent impact to our total (tea) exports,” he told EconomyNext on March 18.
Key buyers such as Iraq, Iran, Saudi Arabia and the UAE – all heavily affected by the conflict – have seen demand evaporate or become impossible to fulfil. Iran’s role is particularly significant: Sri Lanka has been repaying a $251 million crude oil debt through a tea-for-oil barter arrangement. With routes blocked and sanctions tightened, this mechanism has ground to a halt.
The market reaction was swift. At the first Colombo Tea Auction following the outbreak of intensified hostilities, prices fell 4.3 per cent while volumes sold dropped a staggering 13.1 per cent. Share prices of listed tea companies have plunged as much as 30 per cent, reflecting investor fears of prolonged disruption.
Warehouses Overflow as Ships Stay Away
For exporters, the crisis has moved beyond delays into outright paralysis. An official at Akbar Brothers, Sri Lanka’s largest tea exporter, who declined to be named, described the situation bluntly: “We can buy the tea, we can process the tea, pack the tea, everything, but we can’t ship. It’s all ready for shipment, but we can’t ship. So our warehouses are being occupied with all packed and ready cargo.”
Containers that were already at sea have been diverted or offloaded at interim ports, with some shipping lines reportedly instructing exporters to arrange their own retrieval. Colombo port facilities are now operating at or near maximum capacity, creating a bottleneck that threatens to back up the entire supply chain from upcountry estates to the quayside.
Rerouting around the Cape of Good Hope has added 15 to 20 days to transit times for shipments destined for Europe and the United States, inflating fuel costs and disrupting just-in-time delivery schedules that many buyers demand.
Insurance Premiums and Surcharges Explode
The most immediate financial blow comes from spiralling insurance and shipping costs. War-risk premiums for vessels transiting high-risk zones have surged by over 1,000 per cent in some cases. Rates that once stood at 0.25 per cent of a vessel’s value have jumped to between 1.5 and 3 per cent – adding millions of dollars per voyage.
Major carriers including Maersk, MSC and Hapag-Lloyd have introduced Emergency Conflict Surcharges and War Risk Surcharges ranging from $1,500 to $2,000 per 20-foot container and up to $3,500 for 40-foot units. Because importers are unwilling to absorb these extra costs during a crisis, Sri Lankan exporters are forced to swallow them to remain competitive.
Industry estimates put the weekly revenue loss for the tea sector alone at between $10 million and $15 million. Delayed payments for goods already in transit are compounding cash-flow problems for producers already grappling with rising input costs.
Multiple Headwinds Compound the Pain
The external shock arrives at a particularly vulnerable moment for Sri Lanka’s tea industry. Decades-old colonial-era labour practices, chronic fuel shortages, erratic weather patterns linked to climate change and stagnant productivity have already eroded margins. The sector has been fighting to modernise and diversify, but the current blockade threatens to undo years of effort.
Cooke highlighted Iran’s outsized influence: “The impact Iran has on the market is disproportionate to the volumes purchased. Their absence or reduced demand creates immediate price corrections.” Those corrections are now rippling through the entire value chain, from smallholder farmers in the central hills to packers and shippers in Colombo.
Outlook Remains Uncertain
As the conflict enters its third week, there is little sign of immediate resolution. Shipping through the Strait of Hormuz has plummeted more than 70 per cent, and insurers continue to tighten coverage. While some vessels are successfully rerouting via the longer African route, the added time and cost are unsustainable for a price-sensitive commodity like tea.
Stakeholders are calling on the government to explore alternative trade corridors, diplomatic engagement to secure safe passage, and urgent financial support for exporters facing liquidity crunches. Diversification into new markets in East Asia and value-added products may offer longer-term relief, but cannot offset the immediate damage.
For now, Sri Lanka’s famed “cuppa tea” – once a symbol of reliable supply and premium quality – is trapped in a geopolitical storm. Warehouses remain full, orders pile up unanswered, and the island’s most celebrated export faces an uncertain voyage ahead.
