Over the weekend, the US and Israel conducted joint strikes on Iranian missile sites and oil refineries around Kharg Island. Tehran responded by effectively closing the Strait of Hormuz. When markets opened on Monday morning, the numbers we saw just confirmed what everyone already knew was going to happen.
The WTI crude price increased by 6.68% in the opening 10 minutes of Monday from Friday's closing price of $67.02 to $71.49. Brent crude oil price rose by 7.55% to $81.57. Gasoline prices jumped by 3.83% to $2.373 per gallon. Natural gas price rose 1.64% to $2.906 per MMBtu. These were the initial prices of the new reality and they will not be the highest.
Through the 33-kilometre Hormuz corridor, 20 million barrels of oil and about 22% of all LNG traded globally pass every day. For most of the world, Hormuz is a risk to monitor. For Bangladesh, it is the lifeline through which nearly all of its energy flows.
Bangladesh produces less than 10% of the oil it consumes. For nearly a decade, domestic gas output has been falling at a rate of nearly 5% a year and now supplies less than half of national demand. The daily shortfall exceeds 1,300 million cubic feet.
Bangladesh bought 109 LNG cargoes in 2025, spending $3.88 billion. The annual bill for oil import reached $6.1bn. LPG imports account for a further $1.2 to $1.4bn. Oil and gas now account for almost 10% of all foreign exchange expenditures against national reserves of around $30bn. There is very little room.
The geography of those imports acts as the Achilles Heel for Bangladesh. Qatar is Bangladesh’s largest LNG supplier as part of an annual long term 40-cargo contract, with every shipment routed through Hormuz.
The same corridor brings crude oil from Saudi Aramco and ADNOC in the UAE. OQ Trading Oman, another significant LNG partner, has also supplied LNG and refined products through Gulf terminals. Bangladesh also sources spot-market LNG from trading partners who rely on Gulf producers. Disruption in the Strait of Hormuz does not simply push prices up, it stops shipments.
The power sector is already functioning with a significant supply gap. Demand for gas in the power sector stands at more than 2,500 mmcfd but the supply is hovering between 850-900 mmcfd recently. An additional loss of 200 to 250 mmcfd due to the expected decline in LNG cargoes could lead to a generation shortfall of up to 1,800 MW. The system is functioning with limited buffer capacity, which makes external shocks immediately visible in domestic electricity supply.
Natural gas accounts for 60% of Bangladesh's electricity generation and fuels the industrial sector that produces its exports. Over 1,500 textile mills depend on gas for process heat and captive power. Oil drives the physical economy in ways that cannot be substituted overnight.
In the dry season, irrigation of boro rice is entirely dependent on diesel. Diesel trucks transport manufactured goods to Chittagong port. Furnace oil is used for 7.5 gigawatts of private power generation capacity. In both urban and rural kitchens, LPG is used for cooking. These are not parallel systems that can absorb shocks in isolation from one another. They are interlocked; as one is tightened, others follow suit.
For every $10 increase in Brent crude, the annual import bill is estimated to increase by $600m. On the very first morning of trading after the war broke out, gasoline prices were already up by 3.83%. So has natural gas that fuels Bangladesh's factories and is imported as LNG from the Gulf now at war.
The value of the Taka will come under pressure as reserves deplete to cover higher import costs. That depreciation raises the price of all imports further. More expensive diesel immediately works its way into food costs at both the farm level and at the market.
Gas prices, already three times higher than those of 2023, will need to be increased again or the increased cost needs to be absorbed by the government, which is unable to afford such subsidies. It creates a ripple effect where energy shocks spread across transport, agriculture, manufacturing, consumer markets, and also the foreign exchange market.
In 2025, Bangladesh's RMG sector earned nearly $40 bn and is responsible for more than 80% of merchandise export earnings. The EU takes 50% of that output. The United States takes another 19%. This sector is going to be squeezed from both ends by a sustained energy shock.
Production costs rise as gas and power become more expensive. Shipping costs rise as oil tankers crowd into the Indian Ocean lanes that container ships also use, pushing up freight rates and extending delivery times. Bangladesh has the longest garment supply lead times in the industry. A supplier incapable of handling a disruption will find that buyers under their own cost pressure are not going to hold out indefinitely.
The current crisis is revealing market volatility and underlying internal structural vulnerabilities, not a temporary disruption. Heavy import dependence, narrow supply routes, inadequate domestic energy exploration efforts, and limited energy buffers leave the economy exposed to cascading shocks across power sector, industry, agriculture, exports, and financial markets. Strategic diversification and resilience are now economic imperatives, not policy choices.
What can be done?
Several short term policy instruments could mitigate this pressure. Authorities have already taken steps to elevate coal based generation toward 5,000 megawatts and increase output from furnace oil plants.
Although existing contracts are relatively high-priced and the National Review Committee has raised serious questions about the transparency of the contract negotiating processes, suggesting the involvement of sizable irregularities and corrupt practices, the government has nevertheless decided to expand electricity imports from the Adani Group to help stabilize the national grid.
This risks trapping us in the dilemma of validating and affirming the existing contracts under scrutiny. Besides, in the short term, fuel price stability can be achieved through selective tax adjustments and targeted subsidy measures --however this is not a sustainable long-term strategy because of adverse effects on fiscal management.
If the crisis deepens, some austerity measures might seem inescapable. If so, energy allocation in this context must favour strategically important sectors such as export-oriented industries and critical infrastructure. Scheduled load shedding could manage shortages while safeguarding important economic sectors.
Long term energy security needs an overhauling structural reform of the energy sector. This should include renegotiating the existing overpriced power contracts with Adani that cost us additional $1bn a year. Bangladesh must prioritize gas exploration to ensure domestic energy security. The emphasis should be on accelerating offshore exploration as a strategic pillar of long-term resilience.
The ongoing efforts in diversifying the LNG supply chain are still disproportionately skewed towards spot market purchases over long-term contractual procurements, which is not an optimal business strategy. Moreover, since Qatar cannot provide the intended four cargoes of LNG as per the contract, the government has been left with no option but to procure them from the spot market at inflated prices.
Prioritizing long term LNG supply contracts with diverse trading partners and capitalizing alternative trading routes can reduce exposure to concentrated geopolitical risks, but this must be managed carefully within existing diplomatic relationships. Energy infrastructure development, including the rapid completion of the Matarbari deep-sea port and its accompanying LNG terminals, is a matter of high importance to allow broader transmission flexibility.
As the major economies have already established petroleum reserves, we also need to focus on building capacity for petroleum reserves sufficient for at least 30 days of operation, alongside existing coal reserves for strategic resilience and sustainability. Strategic coal reserves are essential to ensure stable and uninterrupted power generation.
At the same time, adequate petroleum reserves are necessary to sustain the operational economy. This is particularly critical for the transport sector, where petroleum fuel remains indispensable.
Shifting to renewables
Emphasizing renewable energy and green growth with crucial institutional reforms in place are essential to reduce Bangladesh’s long-term dependence on imported fuel. Policy should prioritize efficiency by facilitating cost-effective, technologically-viable solutions, with a focus on off-grid renewables, smart grid development, and tax incentives for key solar equipment.
Solar irrigation can replace diesel pumps used for Boro rice cultivation, reducing fuel imports. Rooftop solar should be expanded across government buildings, special economic zones, and industrial areas to diversify supply and reduce grid pressure. Stronger industrial efficiency standards and adoption of energy saving technologies can gradually curb LNG and petroleum demand.
Priority sectors include textiles, home appliances, and transport, where stricter benchmarks could significantly cut gas consumption and improve competitiveness. Stricter textile efficiency standards could cut industrial gas use by 18%, saving 15-20 LNG cargoes annually.
These remedies are neither obscure nor technically difficult. They have long been discussed but insufficiently pursued. Such measures made sense even before the current tensions around the Strait of Hormuz, but now have turned into pressing economic and strategic imperatives.
It is a reminder that energy security and economic stability are closely connected. Bangladesh now faces a clear choice. It can continue to rely on fragile supply chains and linear energy mix or it can use this moment to build a stronger and more resilient power and energy ecosystem.
Mohammad Asaduzzaman is Research Director and Jahid Hossain is a Research Assistant, Dacca Institute of Research and Analytics (daira).
