Middle East: Businesspersons worried as crisis intensifies

Smoke billows over the area of an Israeli air strike on the southern Lebanese village of Kfar Kila near the border with Israel on April 14, 2024, amid ongoing cross-border tensions as fighting continues between Israel and Hamas militants in the Gaza StripFile photo

Tensions have risen in the Middle East since Iran launched an attack on Israel. Global trade will be in crisis if a new war breaks out in the region. Bangladesh’s trade may also feel the heat. As a result, concern has arisen among traders.

If the war spreads in the Middle East, prices of oil and gas will increase first, resulting in an increase of all types of business costs, say businesspersons and economists. They fear that import and export of goods as well as potential foreign investment will also be disrupted due to this.

Israel has been conducting military operations in the Gaza Strip for more than six months. So far, deaths of 33,797 people have been confirmed in the attacks of the Israeli forces there.

Yemen’s Houthi rebels launched attacks on ships in the Red Sea December last year in retaliation for Israel’s attack on Gaza. As a result, avoiding the cheaper and time-saving route, most of the ships of the major shipping companies are now sailing around the African continent.

It takes more time than before to transport goods from Chattogram port to Europe and America.

Before the situation improved, on 1 April, Israel launched a missile attack on the Iranian consulate in Damascus, the capital of Syria. Several military officers, including Brigadier General Mohammad Reza Zahedi, the senior commander of the Quds Force, which operates overseas activities of Iran’s Revolutionary Guards, were killed in the attack. In retaliation, Iran launched hundreds of drone and missile attacks on Israel on Saturday night.

Bangladesh Freight Forwarders Association (BAFA) vice president Khairul Alam told Prothom Alo, “If the movement of vessels in the Strait of Hormuz is interrupted, it will affect our import and export sector in a large part of the Middle East. Because, we need to go through the Strait of Hormuz to transport goods to and from a part of Saudi Arabia, Kuwait, Qatar, Bahrain and the United Arab Emirates. Supply of energy products will be more affected.”

Apparel factory owners worried

Exporters of Bangladesh’s readymade garments have expressed their worries as tensions rise in the Middle East. They say that there has already been some negative impact on the export of readymade garments. If the war breaks out in the Middle East, the purchase order may decrease. Export of manufactured garments will be hindered, they feared.

Speaking about the situation, Asif Ashraf, managing director of Urmi Group and a director of Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said to Prothom Alo, “If war breaks out in the Middle East, unrest will spread everywhere. If the people of the West reduce their shopping budget due to this, then our garment exports will also decrease.”

Asif Ashraf further said that foreign buyers began to place orders for fast fashion clothing with a relatively short lead time (shipping time from the country of purchase) following the attack by Houthi rebels on a ship in the Red Sea last December.

Many buyers turned their eyes to Turkey at that time. If another war breaks out in the Middle East, buyers will want to buy many products with shorter lead times which will increase the pressure, he added.

Although the European Union (EU) and the United States are the major markets for Bangladeshi-made apparel products, exports to some of the Middle Eastern countries are also increasing.

The United Arab Emirates (UAE) and Saudi Arabia are two of the top 10 new destinations for apparel exports. The export of garments in the UAE and Saudi Arabia increased by 37 and 47 per cent respectively in the first eight months of the current fiscal.

Painting a foreboding gloomy picture, BGMEA director Shams Mahmud told Prothom Alo, “The crisis is intensifying in the Middle East. Our garment exports to some countries in the region were increasing. But people there would cut back on shopping if a war breaks out that will affect our export of readymade garments. Besides this, Bangladeshi apparel products go to African countries from Dubai. This could also have a negative impact.”

What the economists say

If the war spreads in the Middle East, it will directly affect two areas, says Masrur Reaz, chairman of Policy Exchange of Bangladesh, a private sector research institute.

Speaking to Prothom Alo on Tuesday, he said first of all, the energy supply chain will be disrupted, which will increase the price of fuel oil and LNG. It may disrupt energy availability and power generation in the country. Secondly, increasing instability in the region will increase the cost and time of cargo ships. This will increase the cost of doing business as well as the cost of living.

Masrur Reaz further said that if the war in the Middle East continues for more than a year, the crisis will increase. Countries like Saudi Arabia, the UAE, Bahrain of the region are the big labour markets for Bangladesh. Even if they do not get entangled in the war, their economies will suffer. Then the recruitment of new labour force from Bangladesh will decrease, which will reduce the expatriate income. Apart from this, if the instability is prolonged, the prospects of investment will take a hit.