The South Asian Network on Economic Modeling (Sanem) expressed concerns that the ongoing conflict in the Middle East could severely impact Bangladesh's economy if international prices for oil and Liquified Natural Gas (LNG) surge.
Potential risks include a decline in GDP growth, reduced imports and exports, rising inflation, and a drop in real income.
In a press release issued on Thursday (April 9), Sanem presented an analysis using the Computable General Equilibrium (CGE) model from the Global Trade Analysis Project to assess various economic scenarios resulting from a prolonged conflict.
According to a detailed analysis by Sanem, a potential surge in global energy prices triggered by Middle Eastern instability could severely derail Bangladesh’s macroeconomic stability.
The research indicates that if crude oil prices jump by 40% and liquefied natural gas (LNG) prices rise by 50%, the domestic economy would face a significant contraction, with real GDP projected to decline by approximately 1.2%.
This energy shock is expected to stifle international trade, potentially driving down exports by nearly 2% and imports by 1.5%.
The ripple effects of such a crisis would be felt acutely by the general public through heightened inflationary pressures.
Sanem forecasts that consumer prices could climb by as much as 4%, while real wages are expected to fall by roughly 1%, leading to a sharp decline in overall purchasing power.
Furthermore, the report warns of a catastrophic energy crisis should the Strait of Hormuz be closed indefinitely, an event that would expose the nation's extreme vulnerability.
With approximately 72% of Bangladesh's LNG supply sourced directly from Qatar and the UAE, any major disruption to Middle Eastern supply chains represents an existential threat to the country's national energy security.
Sanem identified three primary channels through which the current Middle Eastern crisis could destabilize the Bangladeshi economy.
First, the nation faces significant risks regarding energy supply and pricing, specifically concerning the direct costs and physical availability of fuel.
Second, there is a serious threat to remittance inflows, as potential disruptions could impact the earnings and job security of the vast number of Bangladeshi expatriates living in the Middle East.
Finally, the crisis is expected to strain global trade and supply chains, leading to increased shipping costs and significant logistics delays that could hinder both production and consumption.
The release also noted that the government's response to these looming threats has drawn mixed reactions.
While the administration has announced austerity measures and energy rationing as preventative steps, Sanem highlighted a growing "perceived gap" between official government statements regarding fuel availability and the ground reality experienced by citizens and industries.
This disconnect suggests that while policy frameworks are being established, the implementation and communication of energy security measures remain a point of public and economic concern.
Recommendations for energy security
To mitigate these economic risks, Sanem has proposed a comprehensive suite of strategic recommendations aimed at bolstering the government's energy policy.
Central to these suggestions is the need to prioritize renewable energy by focusing on accessible and effective sources, even when faced with land constraints.
To support this transition, the organization emphasizes that the upcoming national budget must ensure significant funding for renewable infrastructure, complemented by financial incentives such as tax-free equipment imports and low-interest loans to expand solar and wind power projects.
Beyond long-term sustainability, Sanem also outlined several immediate tactical measures. These include diversifying fuel import sources in the short term and strengthening bilateral energy agreements to reduce regional dependency.
Furthermore, the report calls for the establishment of national strategic reserves for crude oil, refined fuel, and LNG to buffer against supply shocks.
Until global market conditions stabilize, Sanem recommends rigorous crisis management techniques, such as implementing digital QR code-based fuel rationing, shifting industrial production to off-peak hours, and limiting commercial operating hours to conserve existing resources.