Bangladesh could incur up to $5 billion in additional annual costs if global crude oil prices remain above $120 per barrel, exposing the economy to severe external shocks and putting its industrial base under strain, according to new research by Change Initiative.
The study, unveiled at a seminar in the capital on Saturday, underscores the country’s acute vulnerability to energy market volatility, with Bangladesh currently reliant on imports for roughly 95% of its energy needs.
Researchers estimate that every $10 increase in global oil prices adds approximately $1 billion to Bangladesh’s yearly import bill.
A prolonged period of prices above $120 per barrel could result in an additional burden of between $4 billion and $5 billion annually—equivalent to around Tk 61,000 crore at an exchange rate of Tk 122 per dollar.
“This is not just a short-term shock; it has structural implications for the economy,” said lead researcher M Zakir Hossain Khan. He noted that higher import costs would steadily erode fiscal space, making it increasingly difficult for the government to sustain energy subsidies.
Analysts warn that such pressures could ultimately force domestic price adjustments, raising production costs across industries and heightening the risk of “de-industrialisation” if firms struggle to remain competitive.
SMEs in the Firing Line
The impact is expected to fall disproportionately on small and medium-sized enterprises (SMEs), which account for more than 90% of industrial units, employ up to 80% of the workforce, and contribute roughly a quarter of GDP.
The study cautions that rising energy costs could trigger widespread stress across SMEs, with knock-on effects for larger export-oriented industries—particularly garments—that depend heavily on smaller suppliers.
A sustained shock to SMEs could therefore translate into broader economic disruption, including job losses and weakened export performance.
Energy Crisis and Opportunity
Despite the risks, researchers argue that the current situation presents a strategic opportunity for Bangladesh to accelerate its transition towards energy security and sustainability.
They point to global examples—such as China, India and Vietnam—where large-scale investment in renewable energy has helped shield industrial sectors from fossil fuel price shocks.
The report highlights significant untapped potential within Bangladesh’s SME sector to cut emissions and reduce costs through cleaner energy adoption.
Solar Gains and Carbon Cuts
According to the findings, planned interventions could reduce carbon emissions from SME-linked industrial zones by more than 14 million tonnes annually, while also creating modest revenue streams through carbon credit markets.
A key recommendation is the rapid expansion of decentralised rooftop solar systems. Wider adoption could cut operating costs for SMEs by between 30% and 50%, while enhancing compliance with environmental standards increasingly required in global export markets.
The study also identifies immediate, practical gains: utilising just 10% of unused land in industrial estates could generate around 57 megawatts of solar power annually. Expanding that to 20% could double capacity to 114 megawatts—boosting electricity supply while significantly reducing carbon emissions.
Urgent Policy Shift Needed
Bangladesh has committed to cutting nearly 70 million tonnes of carbon dioxide emissions from its energy sector by 2035 under its updated climate targets, making industrial energy transition a pressing priority.
However, with around 95% of electricity generation still dependent on fossil fuels, the current system leaves the economy highly exposed to global price swings.
“The present moment is both a crisis and a window of opportunity,” Khan said, warning that failure to act now could leave Bangladesh locked into a costly and unstable energy pathway.
The report concludes that decisive policy action—focused on renewable energy expansion, particularly solar—will be critical to reducing external vulnerabilities, safeguarding industrial growth, and ensuring long-term economic resilience.