Bangladesh’s economy may face a decline in growth, exports and real wages, alongside rising inflation, due to energy price shocks and supply disruptions triggered by the Iran-US-Israel conflict, according to a press release by the South Asian Network on Economic Modeling (Sanem).
In the release issued today (9 April), Sanem said Bangladesh’s heavy dependence on imported fossil fuels could raise import and production costs, widen the current account deficit, and intensify inflationary pressure amid rising oil and gas prices.
The press release noted that since 28 February, the war between Iran and the US-Israel coalition has escalated risks to energy production, tanker movements and maritime security across the Gulf region.
It said the unprecedented closure of the Strait of Hormuz has set off a massive energy crunch in Bangladesh, exposing its sensitivity to disruptions in Middle Eastern supply chains.
At least 20% of global liquefied natural gas (LNG) supplies shipped through the route are now at risk, while Qatar has shut down production due to recent attacks, according to energy consulting firm Kpler.
For Bangladesh, the situation is catastrophic as 72% of its LNG imports come from Qatar and the United Arab Emirates, routes that are now effectively cut off. The supply shock comes as the country is already facing a structural gas deficit due to declining domestic production.
Sanem identified three transmission channels – energy, remittance, and trade and logistics – through which the conflict may affect the economy.
To assess the potential impact, Sanem used the Global Trade Analysis Project (GTAP) computable general equilibrium model to simulate several scenarios.
According to the analysis, if global crude oil prices increase by approximately 40% and LNG prices by 50%, Bangladesh’s real GDP may fall by about 1.2%.
Exports may decline by around 2% and imports by 1.5%, reflecting reduced economic activity.
Inflationary pressures would rise sharply, with consumer prices likely to increase by almost 4%, while real wages may drop by nearly 1%, indicating a deterioration in household purchasing power.
Sectoral impacts are also expected. Output in the ready-made garments sector may decline by around 1.5%, the transport sector by nearly 3%, and agricultural production by about 1%. Energy-intensive manufacturing may see a decline of roughly 2.5%.
The press release said the government’s response has generated mixed reactions, citing austerity measures and fuel rationing alongside a mismatch between official statements on fuel availability and the situation on the ground.
Sanem recommended accelerating renewable energy adoption, including rooftop solar, with faster net-metering approvals and support for private sector initiatives.
It also suggested increasing budget allocation for renewable infrastructure, offering fiscal incentives such as tax-free renewable energy equipment and easier access to low-cost financing, and redirecting fossil fuel subsidies towards renewables.
For short-term measures, Sanem advised diversifying energy sources through multi-country contracts and bilateral arrangements to secure crude oil, refined fuel and LNG.
It also recommended developing a strategic national reserve for fuel to prepare for future global supply disruptions.
Additional steps include implementing fuel rationing through digital systems, shifting industrial operations to off-peak hours, reducing commercial operating hours, and prioritising fuel allocation to agriculture and export-oriented manufacturing.
For medium-term resilience, Sanem recommended accelerating onshore and offshore domestic gas exploration to reduce dependence on volatile LNG markets.
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