The Iranian streets are in uproar. What started as demonstrations due to economic difficulties and the political frustrations turned into one of the gravest domestic issues faced by the Iranian state in years.
The violent crackdown on protesters, the news of thousands of demonstrators murdered, has not only rattled the Iranian society but also plunged it into a renewed risky confrontation with the United States.
Donald Trump renewed threats against Tehran, warning of consequences over the killing of protesters. Tehran also warned Washington it would attack US bases all over the Middle East.
If war breaks out between the US and Iran, it will have repercussions all over the world. The ripple effect of internal repression and external pressure, particularly by Washington, affects global markets, and eventually countries like Bangladesh suffer from higher prices and low growth.
Iran is at the centre of the world energy map. Not only is it a force that produces oil, but it is also adjacent to the Strait of Hormuz where much of the oil and gas that is shipped in the world passes daily.
The threat of regional escalation is always high whenever Iran feels surrounded in some way by sanctions, protests, or foreign threats. This is instinctively comprehended by markets. The oil prices are built upon fear because oil prices do not wait till the bombs fall.
The recent protests and Trump’s threats have already rekindled those fears. Investors understand it is a regime under internal pressure which is more unpredictable.
To the world economy, the consequences are not new yet they are also not any less grave. An increase in oil prices introduces inflation, slows down growth, and makes monetary policy more difficult across the globe.
In the case of developing countries, the damage is more acute. They bring in inflation without bringing influence. Bangladesh is one of them as it imports most of its fuel.
Any increase in world oil prices has a direct impact of increasing the import bill, reducing foreign exchange reserves, and exerting pressure on the taka.
Once oil is made costly, the price of transportation increases as does the cost of electricity production and eventually food prices. Ordinary citizens are left with the greatest burden.
It is not some abstract issue. Bangladesh is already facing the pressure of inflation, weak currency, and limited liquidity of dollars. An energy shock emitted by the instability of the Middle East would be fuel to an already burning fire.
They can discuss buffers and adjustments, but the fact is that imported inflation is difficult to neutralize in a consumer-based economy.
Energy is not the only potential risk. Another weakness is the deep labour and remittance relationships that Bangladesh has with the Middle East.
Hundreds of thousands of Bangladeshi labourers make their living in Gulf nations, countries whose economies strongly depend on the stability of the region. Remittance flows thus may decrease in case instability in Iran leads to greater regional tension or if sanctions and counter-sanctions affect the economies in the Gulf. In the case of Bangladesh, it will translate into a strain both on household incomes and foreign exchange reserves.
Exports are equally exposed. The garment industry in Bangladesh relies on consistent world demand and a reliable supply chain. The cost of fuel rising raises the costs of shipping and insurance.
Lack of confidence in the world markets decreases consumer expenditure in the Western market. Combined, these forces put export competitiveness on a squeezer at both ends. Once imports are more expensive and exports are not doing well, the balance of payments becomes dangerously constrained.
The Iranian unrest has a larger lesson to Bangladesh and other developing countries. They emphasize that economic hardship coupled with political inflexibility may result in instability of the global scale.
The protesters in Iran are fueled by not only the political oppression but also the lack of jobs, high inflation rates, and scuttled opportunities. These pressures have been exacerbated by sanctions though the failure of governance has increased these strains.
The reality is that Bangladesh cannot do much about what is happening. Bangladesh does not shape oil prices. The relationship between the US and Iran is not something Bangladesh can control.
As such, the diversification of energy can no longer be a future goal. Being less reliant on imported fossil fuels, encouraging greater development of renewables, and energy efficiency are targets we must strive for.
The diversification of exports must also be explored; our economy is vulnerable as it depends on one area during times of global uncertainties. Social resilience has a lesson associated with it, too as it is the poorest who are injured by external shocks.
Bangladesh might appear to be miles away but time and again, history tells us that geopolitics knows no geographical borders. The fires of Iran and the language of Washington are yet to find their way down into Dhaka, but economically, their heat is already being experienced.
Tuhin Saiful Islam is a freelance journalist focusing on diplomacy, culture, history, food, and cinema.
