A sharp rise in global oil and liquefied natural gas (LNG) prices triggered by a prolonged Middle East conflict could significantly strain Bangladesh’s economy, according to a new analysis by the South Asian Network on Economic Modeling.
In a statement issued on Thursday, the private research organisation warned that higher energy costs would likely slow economic growth, weaken trade, and intensify inflationary pressures, ultimately eroding household purchasing power.
Growth, Trade and Incomes Under Pressure
Using a computable general equilibrium model based on the Global Trade Analysis Project, SANEM examined a scenario in which crude oil prices rise by around 40% and LNG prices by 50% on the global market.
Under these conditions, Bangladesh’s real GDP could shrink by approximately 1.2%. Exports are projected to fall by about 2%, while imports could decline by 1.5%, reflecting reduced economic activity and rising input costs.
Inflationary pressures are also expected to intensify. Consumer prices could increase by nearly 4%, while real wages may decline by around 1%, signalling a tangible squeeze on household incomes.
Strategic Vulnerability to Energy Shocks
The report highlighted the potential closure of the Strait of Hormuz as a critical risk, warning that such a disruption could trigger a severe energy crisis in Bangladesh.
It underscored the country’s heavy dependence on Middle Eastern supplies, noting that roughly 72% of LNG imports come from Qatar and the United Arab Emirates. This reliance leaves Bangladesh highly exposed to geopolitical disruptions in the region.
SANEM identified three key transmission channels through which the shock could spread: energy prices, remittance inflows, and trade and supply chains.
Mixed Signals from Policy Response
According to SANEM, the government’s response has so far produced mixed outcomes. While austerity measures and plans for energy rationing have been announced, a clear gap remains between official assurances regarding fuel availability and conditions experienced at the ground level.
Policy Priorities for Energy Security
In its recommendations, SANEM emphasised the need for a decisive shift towards renewable energy, arguing that Bangladesh should prioritise the most feasible and scalable options given its land and resource constraints.
It said the upcoming national budget offers an opportunity to make substantial and targeted allocations for renewable energy infrastructure, which could help reduce reliance on volatile imported fuels over time.
The think tank also called for stronger financial incentives to accelerate the transition, including tax exemptions on renewable energy equipment and easier access to low-interest financing.
It suggested that subsidies currently directed towards fossil fuels could be gradually redirected to support solar and wind power development, lowering barriers to new projects.
At the same time, SANEM stressed the importance of short-term measures to manage the immediate crisis. These include diversifying energy import sources through expanded bilateral and multilateral agreements, which would help ensure supply stability in the face of global disruptions.
It also highlighted the urgency of building a strategic national reserve of crude oil, refined fuel and LNG to provide a buffer against future shocks.
To cope with ongoing supply constraints, the organisation recommended temporary demand-management steps such as digital fuel rationing systems, shifting industrial production to off-peak hours, and reducing commercial operating times.
SANEM concluded that while a long-term transition to renewable energy remains essential, immediate and coordinated action will be critical to stabilising the economy and safeguarding energy security amid prolonged global uncertainty.