Ongoing war and geopolitical tensions in the Middle East have heightened uncertainty in the global energy market. The Middle East has long been the primary hub of global energy supply.
According to the International Energy Agency, around 20 million barrels of crude oil and petroleum products pass daily through the Strait of Hormuz, accounting for nearly one-quarter of the world’s seaborne oil trade.
At the same time, Qatar and the United Arab Emirates are major suppliers of liquefied natural gas (LNG). Therefore, conflict or military tension in this region threatens not only the oil market but the stability of the entire global energy supply chain.
This situation is particularly concerning for Bangladesh, as the country depends heavily on imported energy. Electricity generation, industry, transport, and agriculture—all rely significantly on imported crude and refined oil, as well as LNG from the Middle East.
A prolonged conflict in the region could severely undermine Bangladesh’s energy security, exert pressure on foreign exchange reserves, increase inflation, and, in the long term, threaten economic stability.
Recent conflicts have already caused significant volatility in global oil prices. Amid fears of supply disruptions, Brent crude prices temporarily rose to around $119 per barrel, although they later eased somewhat.
Such price hikes create immediate economic pressure on import-dependent countries. For Bangladesh, the impact is even more pronounced, as diesel plays a critical role across various sectors of the economy.
One immediate effect on Bangladesh’s economy could be rising inflation. According to the Bangladesh Bureau of Statistics, point-to-point inflation stood at approximately 9.13 per cent in February. Higher fuel prices could increase costs in transportation, agriculture, power generation, and industry, leading to higher food prices and overall inflation. The impact could spread quickly in Bangladesh, given the widespread use of diesel in food transportation, irrigation, and industrial power generation.
A second major impact would be on import costs and foreign exchange reserves. According to Bangladesh Bank, as of 12 March, the country’s total foreign exchange reserves (under the BPM6 method) stood at $29.64 billion. A sudden surge in global oil prices would sharply increase import expenditures, putting additional pressure on reserves and raising the risk of exchange rate instability. At the same time, the trade deficit could widen further.
The fiscal sector would also face significant pressure. Historically, Bangladesh has used fuel subsidies to shield consumers from global price volatility. However, these subsidies come at a substantial financial cost. When fuel prices rise, the burden on the government budget increases.
Expanding subsidies to protect consumers may widen the budget deficit and reduce fiscal flexibility. In recent years, the government’s financial capacity has already narrowed. The tax-to-GDP ratio declined from 7.4 per cent to 6.8 per cent in FY2025–26.
At the same time, total subsidy expenditure has remained high, reaching about 2.2 per cent of GDP in FY2025–26. The energy sector, particularly the state-owned Bangladesh Power Development Board, has received a large share of these subsidies.
Rising energy import costs have increased electricity generation expenses, but retail electricity prices have been kept unchanged to control inflation. The government has also paid part of the arrears owed to independent power producers. Meanwhile, subsidies for fertilisers have remained elevated, and incentives are being provided to boost remittance inflows.
In the context of high global energy prices, if the government aligns domestic fuel prices with international rates, it could quickly raise inflation and the cost of living. Therefore, policymakers must strike a balance between maintaining fiscal stability and controlling inflation.
In this context, exploring alternative energy sources is essential. Bangladesh mainly imports oil and LNG from Saudi Arabia, the UAE, Kuwait, and Qatar. To reduce this dependence, diversification of import sources is necessary. In the short term, importing refined diesel from India and China could be a viable alternative. The India-Bangladesh Friendship Pipeline could play an important infrastructural role in this regard.
Financing high-cost energy imports could also become a major challenge. In this case, international trade financing mechanisms can play a crucial role. The Islamic Trade Finance Corporation has been supporting Bangladesh in oil and gas imports. The financial strength of Petrobangla and Bangladesh Petroleum Corporation is also critical. Petrobangla is not fully self-reliant and has faced import difficulties due to foreign currency shortages. Although BPC is relatively stronger, it has previously accumulated arrears with international suppliers due to forex constraints. Therefore, persistently high energy prices could put additional pressure on these institutions.
In this context, the World Bank’s $350 million support for LNG imports from 2026 could play an important role by encouraging commercial banks to provide financing through guarantees. In addition, government-to-government credit arrangements with supplier countries could also be considered.
A balanced energy pricing policy is essential in this situation. A sudden increase in fuel prices could sharply raise inflation in transport, agriculture, and food supply. On the other hand, maintaining subsidies over the long term would increase the budget deficit. A phased price adjustment could be an effective solution, where luxury energy users pay more while critical sectors such as agriculture and public transport receive targeted support.
Understanding Bangladesh’s energy consumption structure is also important. Diesel is primarily used for irrigation in agriculture, transport, industrial generators, and some power plants. Petrol and octane are mainly used in private vehicles.
Furnace oil is used in specific power plants, while LNG and natural gas are vital for electricity, industry, and fertiliser production. Therefore, any disruption in diesel supply could quickly affect agriculture, transport, and food supply systems.
The conflict in the Middle East has once again exposed the vulnerabilities of Bangladesh’s energy security framework. An import-dependent energy structure, limited foreign exchange reserves, and constrained fiscal capacity make the economy highly sensitive to volatility in global energy markets.
In this context, Bangladesh needs to adopt several policy measures in the short and medium term. In the short term, it is essential to increase strategic fuel reserves, ensure alternative supply sources, and prioritise energy supply for critical sectors. At the same time, reliance on volatile spot markets should be reduced, and long-term supply contracts should be expanded. In the medium term, strengthening energy storage infrastructure, improving energy efficiency, and increasing investment in renewable energy are necessary.
The current crisis also highlights another important issue: Bangladesh must increase its own energy exploration. In particular, exploration activities in the Bay of Bengal should be intensified, and joint initiatives between BAPEX and international energy companies should be expanded. The government has already announced plans for new exploratory wells. If these initiatives are effectively implemented, dependence on imports could be reduced in the long run.
The conflict in the Middle East has once again exposed the vulnerabilities of Bangladesh’s energy security framework. An import-dependent energy structure, limited foreign exchange reserves, and constrained fiscal capacity make the economy highly sensitive to volatility in global energy markets.
Therefore, this crisis should not be viewed merely as a temporary problem, but as an opportunity to rethink long-term energy strategy. By diversifying energy sources, strengthening financial systems, and increasing investment in domestic exploration and renewable energy, Bangladesh can become more resilient and stable in the face of future global energy crises.
*Fahmida Khatun is an economist and Executive Director of the Centre for Policy Dialogue
*The views expressed are the author’s own.