Tensions between India and Pakistan have flared up once again following a deadly attack in Pahalgam, Indian-administered Kashmir, in April 2025. As the dust settles, the implications go far beyond the Line of Control. For smaller South Asian nations like Sri Lanka, the effects of this geopolitical fallout could ripple through trade, tourism, regional cooperation, and economic stability.(India-Pakistan Tensions Reignite)
The Flashpoint: Pahalgam Attack
The attack, which killed 26 civilians—25 Indian tourists and one Nepalese national—was claimed by the militant group Kashmir Resistance, with alleged links to Pakistan-based networks. India responded swiftly, suspending the Indus Waters Treaty, downgrading diplomatic relations, and halting bilateral trade. In retaliation, Pakistan expelled Indian envoys, closed airspace, and warned that interference in the treaty would be considered an act of war.
While direct military confrontation hasn’t erupted, the region is on high alert. And for neighboring countries like Sri Lanka, staying neutral doesn’t mean staying unaffected.
Why This Matters for Sri Lanka
- Regional Trade at Risk
India remains Sri Lanka’s top trade partner, with bilateral trade exceeding $5 billion annually. If tensions escalate into broader sanctions, port restrictions, or transport delays, Sri Lanka’s exports to India—including tea, rubber, and textiles—could face new barriers.
Moreover, with India and Pakistan cutting bilateral trade ties, South Asian trade corridors shrink, reducing regional market integration. SAARC, already struggling, may slip further into irrelevance, affecting Sri Lanka’s ability to access new subcontinental markets.
- Tourism Takes a Hit
South Asia has seen a growing wave of intra-regional tourism, with pilgrims, cultural tourists, and young travelers exploring neighboring countries. A spike in regional insecurity may trigger a wave of travel advisories, directly impacting Sri Lanka’s tourism industry.
Post-pandemic recovery in tourism has been crucial for Sri Lanka’s economy. With India and Pakistan both being sources of inbound tourism, any perception of instability could cause cancellations, especially from safety-conscious markets like Europe and East Asia.
- Economic Confidence & Foreign Investment
Sri Lanka is in the process of regaining investor trust after its recent debt crisis and IMF-backed reforms. However, regional instability lowers FDI confidence, particularly in sectors like logistics, ports, energy, and fintech. Investors often treat South Asia as a single geopolitical block, and rising conflict between two nuclear powers may lead to increased risk premiums for the entire region.
The SAARC Dilemma
The South Asian Association for Regional Cooperation (SAARC) has long been stalled by India-Pakistan disputes. Created in 1985 to promote economic and regional integration, SAARC’s progress was already slow—and this fresh round of hostilities might paralyze it further.
SAARC summits have been repeatedly cancelled or postponed due to diplomatic rows.
The South Asia Free Trade Area (SAFTA) agreement, signed under SAARC, is barely functional.
Sri Lanka, a founding member, stands to lose strategic relevance if SAARC continues to erode.
In contrast, Sri Lanka has increasingly turned to BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation), which excludes Pakistan. This recent conflict might accelerate the shift of regional cooperation from SAARC to BIMSTEC—a space where Sri Lanka could potentially play a greater leadership role.
Navigating the Geopolitical Tightrope
Sri Lanka has traditionally adopted a non-aligned and pragmatic foreign policy, especially when dealing with India-Pakistan disputes. Yet this neutrality must now evolve into active diplomacy.
Strategic Steps for Sri Lanka:
Call for de-escalation through regional forums and the UN, emphasizing peaceful dialogue.
Reaffirm commitment to humanitarian cooperation, offering to host SAARC emergency meetings or bilateral peace dialogues if accepted.
Push for economic resilience by diversifying trade partners and supply chains, reducing overdependence on any single regional economy.
Broader Risks for South Asia
Beyond Sri Lanka, the entire South Asian region could face fallout from this conflict:
Refugee Crises: Any escalation near borders could displace thousands, with ripple effects across South Asia.
Food & Water Insecurity: The Indus Waters Treaty, if permanently scrapped, could lead to unpredictable agricultural conditions across the Indian subcontinent.
Nuclear Brinkmanship: With both countries possessing nuclear weapons, the stakes are far higher than conventional border skirmishes. One misstep could trigger a chain reaction that affects global peace and markets.
Conclusion: Diplomacy Over Destruction
Sri Lanka must closely watch this situation—not with fear, but with strategic awareness. As a small island nation amidst giants, its success lies in staying agile, economically diversified, and diplomatically engaged.
While it cannot influence the trajectory of India-Pakistan tensions directly, Sri Lanka can take a proactive role in championing dialogue, trade cooperation, and regional stability. The future of South Asia depends not on its divisions, but on its ability to rise above them—together.
