India Tightens Grip On Sri Lanka As US And China Take The Back Seat – Analysis
Sri Lanka's Colombo Dockyard. Photo Credit: Colombo Dockyard PLC
With China virtually withdrawing from Sri Lanka and the United States embroiled in wars in West Asia and Europe, India has stepped into the breach in the island nation, making significant economic and political inroads in recent days.
India has entered the ports, shipping and energy sectors, while China has not gained ground.
The time now appears propitious for India to make bold moves. In the subcontinent, arch-rival Pakistan is busy mediating between the US and Iran over the Strait of Hormuz. China, too, is deeply engaged in securing energy flows through the Strait.
For a change, rivals India and China have been trying to build bridges with each other due to shared difficulties vis-à-vis the Trumpian United States.
China responded favourably to India’s moves to mend the fences with economic concessions to secure Chinese investments. The two countries have increased air services to facilitate a greater movement of goods and people.
SINOPEC Refinery in Doldrums
In 2024, elections in Sri Lanka brought to power the pro-Beijing National Peoples’ Power (NPP). And when President Anura Kumara Dissanayake visited Beijing in 2025, it was assumed that China was back in Sri Lanka as an influential economic and geopolitical factor after its virtual exit from the island during the economic crisis in 2020.
Indeed, China and Sri Lanka announced an agreement to set up a huge oil refinery in Hambantota with an investment of US$ 3.7 billion But the refinery to be set up by Sinopec, is yet to take off. It is facing multiple issues like disputes over the equity structure, tax concessions, market access, allocation of land for the project, and environmental concerns.
The deal also raised worries about sovereignty and long-term economic independence. Red flags were raised about China’s controlling a major deep-water port and a potential mega refinery in the same area (Hambantota).
The original Request for Proposal (RFP) had stipulated foreign equity to be capped at 20%, and mandated 80% of the projected output per day to be earmarked for exports. But Sinopec sought a larger equity share and dilution of the 80% export obligation to enable it to gain wider access to the domestic market in Sri Lanka.
Till now Sri Lanka has ruled out any changes in the RFP.
Separately, the Ceylon Petroleum Corporation (CPC) had raised concerns that unrestricted market access for Sinopec could severely disrupt the petroleum sector in Sri Lanka and adversely affect energy security.
The Sri Lankan government had initially offered 500 acres of land for the project in Arabokka, in the Hambantota district. Subsequently, Sinopec requested an additional 200 acres just 3.5 kilometres from the Chinese-controlled port at Hambantota. The authorities concerned are yet to decide on the quantum of land to be allocated, and there is also the related issue of lease duration for the land to be allocated. Hence, no formal agreement has been reached in this regard.
Meanwhile, the Central Environment Authority (CEA) had issued the terms of reference to Sinopec to carry out an environmental impact study and submit the report to it.
Take over of Colombo Dockyard
With threats to its presence in Sri Lanka receding, India is pushing the envelope in Sri Lanka. Sri Lanka has just allowed the government-owned ship building company, Colombo Dockyard PLC (CDPLC), to be acquired by the Mazagaon Docks Ltd. (MDL) run by India’s Defence Ministry. The Colombo Dockyard PLC, Sri Lanka’s largest shipyard, has become a subsidiary of MDL following the acquisition of a controlling 51% stake. The Board of CDPLC has been reconstituted with MDL nominees.
MDL’s total investment is valued at US$ 26.8 million. This is MDL’s first international acquisition and a transformative step aligned with the Modi government’s “Maritime Amrit Kaal Vision 2047.”
The acquisition of CDPLC is seen in both Sri Lanka and India as expanding India’s strategic footprint in the Indian Ocean. By controlling Sri Lanka’s largest shipyard—located within the Port of Colombo—India gains a critical hub for ship repair and maintenance along major global shipping routes.
India’s Adani Ports is already operating the West Container Terminal in Colombo port to share the business with the Chinese-run Colombo International Container Terminals (CTCT), South Asia’s most efficient terminal.
Trincomalee Oil Tanks
India is also seeking to accelerate the Trincomalee energy hub project in Eastern Sri Lanka, which includes an oil pipeline running from Trincomalee to Tamil Nadu. India will be partnering with the UAE in this project.
“The project will transform Trincomalee into a major energy hub in South Asia. With India’s cooperation, it should be completed expeditiously,” said Indian Foreign Secretary Vikram Misri while briefing the media on the two-day official visit to Sri Lanka of Indian Vice President C.P. Radhakrishnan. Misri added that the Vice President’s visit provided an opportunity to highlight the strategic importance of the Trincomalee project to the Sri Lankan authorities.
Under the first phase of this project, an oil pipeline is to be laid between Tamil Nadu in South India and Trincomalee, which has 99 giant oil tanks under Indian control. The tanks had been built in 1944 by the British, who were fighting the Japanese.
However, many in Sri Lanka think that the 1987 Indo-Sri Lanka agreement, which stipulates that the Trincomalee oil tanks restoration work would be undertaken as a joint venture between India and Sri Lanka, has no legal basis.
In 2003, bilateral negotiations saw all 99 tanks in the facility leased for 35 years at an annual rent of US$ 100,000. However, the lease agreement was never fully implemented, partly owing to the civil war in Sri Lanka and partly owing to opposition in Sri Lanka.
In 2017, both sides agreed in principle to jointly operate the tank farm, but the deal saw little progress. Sri Lankan oil worker unions continue to staunchly oppose Indian involvement in the project. The issue has also become entangled in Sri Lankan politics and used to stir anti-India sentiments, which, as history has shown, can transform into votes during elections.
Earlier, local opposition, environmental objections and a dispute over financial terms forced the Adanis’ project to install a wind power plant in North Sri Lanka. That was to replace a Chinese project, which India had objected to.
Overseas Indian Citizenship Granted
Be that as it may, in a move of enormous geopolitical import, India has decided to fast-track the grant of Overseas Citizen of India (OCI) cards to Sri Lankan citizens of Indian origin up to the sixth generation.
By this step, 1.5 million Tamils of Indian origin, who are mostly workers in the Sri Lankan plantations, can obtain OCI cards which enable them to travel to India any number of times, do business there and acquire properties. But they will not have the right to vote. It is reported that 500,000 Indian Origin Tamils have applied immediately.
Some say approvingly that the grant of OCI status to the Indian Origin Tamils will greatly expand India’s strategic footprint in Sri Lanka. However, commentators from the majority Sinhalese community argue that the unilateral Indian project should have been discussed in the Sri Lankan parliament first.
Columnists also wonder if the Anura Kumara Dissanayake government is putting all its eggs in one basket – the Indian basket, when India itself has stopped doing so?
Successive Sri Lankan governments have allowed India to acquire a political and economic foothold among the plantation Tamils of Indian origin. This is because Indian aid to them has relieved Sri Lankan governments of the responsibility to look after them – Sri Lanka’s poorest and the least educated. It is India which has built 4000 plus houses for them and sent teachers to their schools.
However, the strategic community in Sri Lanka has been warning Colombo about the possibility of Indian-origin Tamils getting alienated from the Sri Lankan State and their becoming a client of India in the latter’s geopolitical plans.



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