War shock, rising inflation test Tarique govt

The newly formed government led by Tarique Rahman is facing mounting economic pressure less than three weeks after taking office, as global energy disruptions and rising domestic inflation threaten to deepen the country’s already fragile financial situation.

Officials say, the ongoing conflict involving the United States, Israel and Iran — culminating in Tehran’s decision to shut down the strategically vital Strait of Hormuz, has begun to affect Bangladesh’s energy supply and import costs.

The waterway is one of the world’s most important oil transit routes, and tensions surrounding it have rattled global energy markets.

International oil prices have surged by roughly 25 percent amid the crisis, raising concerns in Dhaka over the potential impact on fuel imports, electricity generation costs and transportation expenses.

Government officials familiar with the situation said the administration has already begun to feel the economic strain only about 20 days after assuming office.

The ongoing conflicts in the Middle East could put fresh pressure on Bangladesh’s foreign exchange reserves as global prices of liquefied natural gas (LNG) and fuel oils continue to spike, economists warn.

They have urged the government not to pass the higher global energy costs on to domestic consumers, cautioning that any increase in fuel prices could intensify inflation and further strain household budgets.

The observations were made during a meeting between economists and newly appointed Bangladesh Bank governor Md. Mostaqur Rahman at the central bank headquarters on Saturday.

Meanwhile, the government has signalled that it will continue rationing fuel and energy supplies due to the uncertainty surrounding the war.

Power, Energy and Mineral Resources Minister Iqbal Hassan Mahmood Tuku said on Sunday that the authorities intend to carefully manage existing reserves until the geopolitical situation stabilises.

“The duration of the war remains uncertain and the government wants to use the existing reserves carefully,” the minister said at a programme in the capital, adding that energy rationing would remain in place as long as the conflict continues.

The pressure is compounded by declining foreign exchange reserves.

Following a payment of $1.37 billion to the Asian Clearing Union to settle import bills for January and February, Bangladesh’s reserves have once again slipped below the $30 billion mark.

According to Bangladesh Bank spokesperson and executive director Arief Hossain Khan, the country’s reserves now stand at $29.38 billion after the latest ACU settlement.

The Asian Clearing Union, headquartered in Tehran, was established in 1974 under the initiative of the United Nations Economic and Social Commission for Asia and the Pacific to facilitate trade payments among member states through a regional clearing mechanism.

Bangladesh settles import payments with eight other member countries — including India, Pakistan, Sri Lanka and Iran — through this system every two months.

Economists say the decline in reserves is particularly concerning at a time when the country faces rising import costs due to global energy volatility.

Bangladesh relies heavily on imported fuel for electricity production and industrial activity, making it vulnerable to disruptions in global oil supply routes.

At the same time, domestic inflation is once again climbing, adding further pressure on households.

Data released on Sunday by the Bangladesh Bureau of Statistics showed that national inflation rose to 9.13 percent in February on a point-to-point basis, up from 8.58 percent in January.

The latest figure marks the highest inflation rate in ten months, since April 2025 when inflation stood at 9.17 percent. It also represents the first time in nine months that overall inflation has crossed the nine-percent threshold.

The rise was largely driven by a sharp increase in food prices. Food inflation climbed to 9.3 percent in February from 8.29 percent in the previous month, marking the fifth consecutive month of increase. Non-food inflation also rose to 9.01 percent from 8.81 percent in January.

Economists warn that persistent inflation has already eroded the purchasing power of ordinary Bangladeshis over the past three years. In 2025, the average annual inflation rate stood at 8.77 percent.

For middle- and lower-income households, the impact is particularly severe. Inflation acts much like an invisible tax, forcing families to spend more on basic necessities while their incomes fail to keep pace with rising prices.

Data from the statistics bureau show that wage growth stood at 8.06 percent in February — significantly lower than the inflation rate — indicating a decline in real income for many workers.

The combined effect of global geopolitical tensions, rising fuel prices, declining reserves and accelerating inflation presents an immediate economic challenge for the new administration.

Analysts say the government’s policy response in the coming months will be critical in stabilising markets and shielding consumers from further price shocks.

With global energy routes under threat and domestic economic indicators under strain, the early days of the new government are unfolding against a backdrop of economic uncertainty.