SANEM explains economic impact if oil and LNG prices rise

South Asian Network on Economic Modeling (SANEM) has presented an analysis of how Bangladesh’s economy could be affected if oil and LNG prices increase due to the Middle East war.

SANEM forecasts GDP growth, imports, and exports may decline while at the same time, inflation could rise, reducing people’s real income.

Additionally, garment production and agricultural output may decrease.

These observations were made in a press release sent by SANEM on Thursday afternoon.

To assess how a prolonged conflict in the Middle East could impact Bangladesh’s economy, SANEM used the Global Trade Analysis Project’s computable general equilibrium (CGE) model and outlined several possible scenarios.

Using this model, SANEM stated that if global crude oil prices increase by about 40 per cent and LNG prices by 50 per cent, the resulting energy price shock would have significant negative effects on Bangladesh’s economy.

Real GDP could decline by approximately 1.2 per cent, exports by around 2 per cent, and imports by about 1.5 per cent.

SANEM also noted that inflationary pressure would rise sharply. Consumer prices could increase by about 4per cent. At the same time, real wages may fall by around 1 per cent, indicating a decline in household purchasing power.

The organisation further stated that an indefinite closure of the Strait of Hormuz has created a severe energy crisis in Bangladesh, highlighting the country’s heavy dependence on Middle East–based supply systems. This global disruption is particularly severe for Bangladesh, as 72per cent of its LNG imports come from Qatar and the United Arab Emirates.

SANEM identified three main transmission channels through which the Middle East situation is affecting Bangladesh’s economy: energy, remittances, and trade and supply chains.

According to SANEM, the government’s responses have so far produced mixed outcomes. On one hand, austerity measures and energy rationing have been announced. On the other hand, there is a clear mismatch between official claims about fuel availability and the reality on the ground.

In this context, SANEM has made the following recommendations to ensure the country’s energy security:

1. Considering land and other constraints, the government should focus on the most accessible and effective renewable energy options.

2. By allocating significant and specific funding for renewable energy infrastructure and implementation in the upcoming national budget, the government can reduce dependence on unstable imported fuels.

3. Barriers to new solar and wind energy projects can be reduced by offering financial incentives such as tax-free renewable energy equipment and low-interest loans on easy terms, along with shifting fossil fuel subsidies toward the renewable sector.

4. Although a fundamental transition to renewable energy is necessary for long-term sustainability, in the short term the country must diversify its import-based energy sources. Multilateral agreements and bilateral arrangements should be expanded to secure crude oil, refined fuel, and LNG supplies.

5. Given the frequent and prolonged crises in the global energy sector, it is essential to build a “strategic national reserve” of crude oil, refined fuel, and LNG.

6. Until the situation improves, implementing energy rationing (QR code–based digital fuel passes), shifting industrial production to off-peak hours, and reducing commercial operating hours would be helpful.