Despite a sharp rise in global fuel prices, domestic retail rates in Bangladesh have yet to be adjusted.
As a result, the government may have to provide substantial subsidies to absorb the increased cost of fuel imports.
Economists and energy analysts warn that if the current situation persists, fuel subsidies in the upcoming national budget could rise significantly, placing fresh strain on the macroeconomy.
International crude oil prices are climbing rapidly. Ongoing tensions in the Middle East—particularly between the United States and Iran—and concerns over the security of the Strait of Hormuz have put global oil supplies at risk.
Analysts warn that if the conflict intensifies, prices could approach $200 per barrel.
On Monday, Brent crude was trading at $116.10 per barrel, up 3.14% from the previous day. At the same time, WTI crude rose to $102.30 per barrel, marking a 2.66% increase.
Research indicates that for every $10 increase in global oil prices per barrel, Bangladesh’s annual import costs rise by approximately $1 billion.
If prices remain above $120 per barrel for an extended period, the additional annual cost could reach $4–5 billion—equivalent to roughly Tk61,000 crore at an exchange rate of Tk122 per dollar.
A recent study by the private research organization Change Initiative highlights these projections.
Its chief researcher, M Zakir Hossain Khan, notes that Bangladesh relies on imports for around 95% of its energy needs, making even minor global price fluctuations highly impactful on foreign exchange spending and the national budget.
Although global oil prices have surged, the government has decided to keep domestic fuel prices unchanged for now.
The Ministry of Power, Energy and Mineral Resources has confirmed that the current prices of diesel, octane, petrol and kerosene will remain in place for April.
At present, diesel is sold at Tk100 per litre, while its actual import and supply cost has risen to around Tk198. This means the government is subsidizing around Tk98 per litre.
Similarly, octane is sold at Tk120 per litre, although its import cost exceeds Tk150.
According to the Bangladesh Petroleum Corporation (BPC), if domestic prices were aligned with international rates, diesel could be priced close to Tk200 per litre.
However, by maintaining current prices, the government is incurring subsidy costs of around Tk5,000 crore per month.
State Minister for Energy Iqbal Hassan Mahmood Tuku told Parliament that global diesel prices have increased by around 98% over the past month, significantly raising import costs and putting pressure on the budget.
How much could subsidies increase?
Preliminary estimates from the Ministry of Finance and the Energy Division suggest that if high global prices persist, Bangladesh may incur an additional $3 billion in import costs in the final three months of the current fiscal year alone.
To manage this burden, the government is seeking budgetary support and loans from international institutions.
Key estimates include a $10 increase per barrel adds around $1 billion in annual costs, sustained prices above $120 could add $4–5 billion annually, and equivalent in local currency, around Tk61,000 crore
Officials warn that with already high subsidy allocations in the revised FY26 budget, any further increase could complicate overall fiscal management.
Higher fuel prices are also driving up electricity generation costs. A significant portion of Bangladesh’s power generation still depends on diesel, furnace oil and imported LNG.
The Power Division has already requested an additional Tk20,136 crore in subsidies from the Ministry of Finance. Currently, around Tk3,250 crore is spent monthly on subsidies, but this could rise to around Tk5,000 crore if the proposal is approved.
If implemented, total power sector subsidies could exceed Tk60,000 crore in the current fiscal year.
Prof M Shamsul Alam, energy adviser to the Consumers Association of Bangladesh (CAB), argues that curbing inefficiencies and mismanagement in the power sector could resolve many of its financial challenges.
He warned that excessive subsidies are putting increasing pressure on the broader economy and limiting spending in other priority areas.
Pressure on forex reserves
Rising global fuel prices are also straining Bangladesh’s foreign exchange reserves.
Analysts estimate that monthly fuel import costs have increased by $760–830 million.
To address this, the government is seeking financial support from institutions such as the IMF, World Bank, ADB and AIIB.
Officials expect around $1.5 billion in assistance from the IMF and have requested an additional $250 million from the ADB.
Prolonged high energy costs could adversely affect the industrial sector, particularly small and medium-sized enterprises (SMEs), which account for over 90% of industrial units and generate 70–80% of employment.
Experts suggest that the current crisis also presents an opportunity. Increasing investment in renewable energy—especially solar power—and improving energy efficiency could reduce long-term dependence on imports.
According to Change Initiative, expanding rooftop solar in industrial areas could reduce operating costs by 30–50% in many cases.
Economists believe the government faces two difficult options: raising domestic fuel prices or continuing with large-scale subsidies. Both carry economic risks.
In the long term, structural reforms in the energy sector, increased domestic gas exploration, and greater investment in renewables will be essential to reducing vulnerability to global market volatility.
