Iran war may fuel inflation in BD
Bangladesh’s economy could experience slower growth, weaker exports and declining real wages, alongside rising inflation, due to energy price shocks and supply disruptions stemming from the Iran-US-Israel conflict, according to the South Asian Network on Economic Modeling (Sanem).
In a press release issued on Thursday, Sanem warned that the country’s heavy reliance on imported fossil fuels may drive up import and production costs, widen the current account deficit, and intensify inflationary pressure as global oil and gas prices surge.
The statement noted that since 28 February, escalating conflict involving Iran and the US-Israel alliance has heightened risks to energy production, tanker operations and maritime security in the Gulf region.
The unprecedented closure of the Strait of Hormuz has triggered a severe energy shock for Bangladesh, underscoring its vulnerability to disruptions in Middle Eastern supply chains.
According to energy consultancy Kpler, roughly 20percent of global liquefied natural gas (LNG) shipments passing through the route are now at risk, while Qatar has suspended production following recent attacks.
The impact is particularly severe for Bangladesh, as about 72percent of its LNG imports originate from Qatar and the United Arab Emirates—supply lines that are now effectively disrupted.
This comes at a time when the country is already grappling with a structural gas shortfall due to declining domestic output.
Sanem identified three key transmission channels—energy, remittance, and trade and logistics—through which the conflict could affect the economy.
Using the Global Trade Analysis Project model, the organisation simulated several scenarios to assess potential impacts.
The analysis suggests that if global crude oil prices rise by around 40percent and LNG prices by 50percent, Bangladesh’s real GDP could contract by approximately 1.2percent. Exports may fall by about 2percent, while imports could drop by 1.5percent, reflecting weaker economic activity.
Inflation could surge, with consumer prices increasing by nearly 4percent, while real wages may decline by about 1percent, eroding household purchasing power.
Sector-wise, the ready-made garments industry could see output fall by roughly 1.5percent, transport by nearly 3percent, and agriculture by about 1percent. Energy-intensive manufacturing sectors may contract by around 2.5percent.
Sanem noted that the government’s response has drawn mixed reactions, citing austerity measures and fuel rationing, as well as inconsistencies between official claims of adequate fuel supply and the on-ground situation.
To address the crisis, the think tank recommended accelerating the adoption of renewable energy, including rooftop solar systems, along with faster net-metering approvals and stronger private sector participation.
It also called for increased budgetary support for renewable infrastructure, tax incentives for clean energy equipment, easier access to low-cost financing, and a gradual shift of subsidies away from fossil fuels.
For immediate relief, Sanem advised diversifying energy imports through multi-country agreements and bilateral deals to secure crude oil, refined fuels and LNG.
It also proposed building a strategic national fuel reserve to cushion against future global disruptions.
Additional short-term steps include implementing digital fuel rationing systems, shifting industrial operations to off-peak hours, reducing commercial activity hours, and prioritising fuel allocation for agriculture and export-oriented industries.
For longer-term resilience, Sanem emphasised the need to accelerate both onshore and offshore gas exploration to reduce dependence on volatile global LNG markets.
