How does the Iran war threaten Bangladesh’s economy?

It is apprehended that Bangladesh will face higher import and export costs if the US-Israel’s war against Iran prolongs, as shipping and airfreight charges have already started to rise and cargo is being diverted along longer shipping and air routes.

According to industry insiders, importing raw materials such as cotton and other factory inputs from the US and Europe might become more expensive, possibly driving up production costs at local mills and factories.

Since the war began on Saturday (February 28), at least six international airlines, including Qatar, Kuwait, Oman, and Air Arabia, have suspended cargo operations from Hazrat Shahjalal International Airport (HSIA) in Dhaka.

However, airlines that are still flying from Dhaka are carrying limited cargo, leaving more than 1,200 tonnes, particularly garments, stranded at the HSIA. So, exporters may have to reroute shipments via China, Malaysia, and Hong Kong to reach Europe and the US, which is likely to increase costs.

Bangladesh usually uses Colombo, Singapore, and Port Klang in Malaysia as feeder ports. Smaller vessels carry cargoes from Chattogram to those seaports and feed large mother vessels. Most cargo then travels to Europe and the US via the Suez Canal or around the Cape of Good Hope.

Vessels taking the Cape of Good Hope must travel nearly 5,000 kilometres further and burn more fuel, prompting higher freight charges.

Experts see a prolonged war in the Middle East not as a distant political development but as a direct and serious economic risk for our country.

Our economy is already in a fragile condition. Foreign exchange reserves have come under sustained pressure in recent years. In such a situation, a long war in the Middle East could deepen existing vulnerabilities and make conditions even more challenging for businesses.

Iran’s Revolutionary Guards have already declared the Strait of Hormuz closed and vowed to fire on any ship attempting to pass, threatening a critical maritime artery through which about one fifth of the world’s oil flows.

Around 150 vessels were stranded near the strait on Tuesday, and at least four tankers had been damaged, as insurers cancel war risk cover for Gulf transits.

Our economy is already in a fragile condition. Foreign exchange reserves have come under sustained pressure in recent years and inflation has remained stubbornly high.

In such a situation, a long conflict in the Middle East could deepen existing vulnerabilities and make conditions even more challenging for our businesses and households alike.