BM Desk : Bangladesh is heavily dependent on imports and exports, therefore the impact of an Israel-Iran war and the resulting oil price shock would be significant. How is Bangladesh going to manage the difficult road ahead?
If the battle disrupts international shipping lanes, would the consequences only affect our energy supply, or may they also affect our exports, extending from North America to Europe?

In order to get their opinions on the Israel-Iran conflict and its wider economic ramifications, the media interviewed corporate executives, energy analysts, lawmakers, and specialists in international trade.

Muhammad Fouzul Kabir Khan, adviser for power, energy, and mineral resources, stated: “A nation like Bangladesh, whose energy security is heavily dependent on imports, is devastated by the Israel-Iran war, since the price of oilis already soaring.”

“We would have difficulties if the price of oil continuously rises on the international market. We will feel the heat if things get out of hand, which is quite improbable. “I don’t anticipate any significant issues in the foreseeable future,” he stated.
“If it escalates further, we would be in difficulty, but we would absorb the shock of a Tk18–20 hike per liter. Since we bought oil in May for use in June and July, we are safe until July,” the advisor stated.

According to Fouzul Kabir, the unforeseen events in the Middle East may cause a setback to the effort to further lower oil prices. “As our pricing of Tk 18-20 per litre is cheaper than the foreign market, we were aiming to further reduce the oil price,” he added. “However, we must now observe the circumstances, which eventually holds back the capability of oil price downward adjustment.”
Because the index, not the premium, which ultimately sets the price of oil, will fluctuate in the next supply, Bangladesh has managed to negotiate a six-month long-term oil supply arrangement from July to December, which will help protect it from abrupt price spirals.
“There are two components under the long-term contract: the index and the premium,” he stated. The fixed premium will provide us with comfort. The volatility would cause the index to fluctuate. despite a potential shift in the oil price index.

“If the index’s volatility persists from July onwards, we will be impacted. However, if there are only minor fluctuations in the index, we will not experience significant effects due to the buffer we have on oil pricing compared to the Indian price, as our price is Tk 18-20 lower than the Indian price, providing us with leverage to adjust future oil prices,” stated the advisor.

Another issue for Bangladesh is the cost of liquefied natural gas (LNG). Given that LNG and other primary fuel prices are closely tied to global oil prices, a sustained increase in oil prices is likely to elevate LNG prices as well, making Bangladesh more vulnerable due to its price sensitivity.

Considering that oil prices affect all major fuel costs, including LNG, the pressing question now is: What does the future hold for Bangladesh’s LNG imports in light of the impending price surge?

In response, the energy advisor remarked, “We do not anticipate a significant problem with fuel oil prices, but LNG will be impacted as we must purchase it from the spot market.”

When questioned about whether the government would reduce LNG imports in light of the expected price increase, Fouzul Kabir replied, “We are not contemplating that option at this time. We need to closely observe the market before making any decisions.”

Mustafizur Rahman, a prominent fellow at the Centre for Policy Dialogue (CPD), noted that the Israeli assault on Iran triggered the spike in oil prices, and it is now a matter of waiting to see if this trend continues.

“We need to assess the nature of Iran’s response and how far Israel escalates its actions following the Iranian attack, as well as the reactions from other Middle Eastern nations and the USA. Considering all these factors, the situation could either escalate or de-escalate,” he explained.

“As a country reliant on fuel imports, this rise in oil prices will inflict hardship on us. Additionally, if the effects persist, the increase in oil prices will negatively impact our trade balance and current account balance,” he added.

In the tit-for-tat conflict, maritime shipping routes will face significant disruptions, leading to increased import and export expenses, which will ultimately diminish competitiveness.

Mustafizur Rahman remarked, “We need to observe whether this is a sustained medium-term trend or merely a temporary setback, but it certainly serves as a significant warning for our trade and commerce.”

Following the US announcement of its non-involvement in the Israeli assault on Iran, he stated, “The US will exert pressure on Israel to prevent further escalation, which will provide some relief to global businesses.”

He added, “Should the situation escalate further, it will not only affect oil prices but also the essential commodities we rely on daily, as oil prices serve as a key indicator of commodity prices in the global market.”

BGMEA President-elect Mahmud Hasan Khan Babu has voiced serious concerns regarding the repercussions of the Israel-Iran conflict on global oil prices and its wider implications for Bangladesh’s export sector.

He cautioned that the consequences of the conflict could disrupt global supply chains, impacting countries such as Bangladesh.

Babu stated, “This is a serious problem for our exports.” “The Houthi attacks in the Red Sea have already caused us to reroute supplies, resulting in delays and additional expenses.”
He went on to say that further unrest in the Gulf and Red Sea regions would cause more shipping line disruptions, which would exacerbate port traffic and cause delays in cargo handling.
“Our efforts to reduce congestion at Chattogram Port will be hindered if shipping routes are restricted,” he said.

In order to speed up cargo unloading, BGMEA intends to write to the authorities asking for more resources at the port.