Iran War Fallout: How Sri Lanka, Pakistan, and Egypt Are Struggling With Rising Energy Costs

Sri Lanka's tourism industry was hoping 2025 would finally mark a full recovery from years of economic hardship. Instead, the outbreak of war involving Iran sent oil prices surging 40%, forcing the government to raise fuel prices by 35% — dealing yet another blow to businesses that were just beginning to stabilize.

Tour operator Sanoj Weeratunge, based in Colombo, watched his bookings drop nearly a third. "We were very hopeful this would finally be the year we reach pre-COVID levels," he said. "But now this economic shock will affect us."

Sri Lanka is not alone. Pakistan, Egypt, and other lower-income, import-dependent nations are feeling the ripple effects of the Middle East conflict. These countries rely heavily on energy imports, and the sudden price spike is widening their current account deficits, draining foreign reserves, and weakening local currencies. Egypt's pound has already fallen more than 10% since the conflict began.

For Pakistan, the strain is mounting quickly. Gross foreign reserves stand at just $16.4 billion — insufficient to cover three months of essential imports. Petrol prices have been raised twice, schools were closed for weeks, and government offices moved to a four-day workweek. A looming $3.5 billion loan repayment to the UAE adds further pressure to an already fragile financial situation.

Egypt faces its own set of challenges, including a potential hit to its $19 billion tourism sector, reduced Suez Canal activity, and about $30 billion in upcoming debt payments — exceeding half of the country's foreign exchange reserves.

The International Monetary Fund has signaled readiness to deploy between $20 billion and $50 billion in emergency assistance. Finance officials from affected nations are expected to press for relief at the upcoming IMF and World Bank spring meetings in Washington.

For ordinary citizens, the daily reality is already harsh. A Sri Lankan tuk-tuk driver and father of three summed it up plainly: "It's very difficult to live."