Bangladesh will likely be able to shield itself from the immediate impacts of the ongoing Russia-Ukraine conflict, but a drawn-out fight between the two may weigh heavily on the global economy, say businesses and economists.
Oil prices have already shot past $100 per barrel in the international market, along with several successive hikes in the price of LNG and fertilizer.
As the government has to import these products at higher rates, this may further impact the livelihoods of people, economists say.
In addition, the majority of the country's total wheat demand is met with imports from Russia and businesses have already stopped importing the grain, among several other products.
However, the country's exporters think that the outbound trade will not be affected as much since neither Russia or Ukraine are big export destinations for Bangladesh.
But a prolonged crisis could have “profound effects” as rising oil prices will drive up transportation and freight costs.
The biggest fear though is of the war spilling over to other neighbouring countries in the region as Poland, Germany and some other European countries close to Russia are major export destinations for Bangladesh.
Choked off wheat supply threatens food security
According to importers, one-third of the global wheat supply comes from Russia and Ukraine.
The two countries also supply a good amount of maize, rapeseed, canola, cotton, sunflower oil and pulses, and Bangladesh depends on imports from both nations to meet the domestic requirement for such commodities.
Importer Aminul Islam says the wheat market will be completely disrupted.
“Exports from those countries may stop temporarily. As a result, if the supply of food decreases, the prices of food will increase. That is why we fear that there will be huge pressure on food security,” he added.
He also said that Ukraine supplies more than half of the world's sunflower oil, and if the war runs for long, then there will be a negative impact on that as well.
Food security at further risk due to high fertilizer prices
Economists fear that more price hikes for fertilizer are on the horizon as the Russia-Ukraine crisis adds to fears of global shortages, stoking more concerns about rising food costs.
Russia is a low-cost, high-volume global producer for all major fertilizers, and after Canada, it is the world’s second-largest producer of potash — a key nutrient used on major commodity crops and produce.
This could lead to rising costs for farmers in Bangladesh, who are scaling back on fertilizer use to make ends meet.
Moreover, this hike will potentially trigger lower crop yields and push prices for food even higher.
As Bangladesh is an agricultural country, it has to import a lot of fertilizer every year with huge government subsidies for the sector.
Ahsan H Mansur, executive director of the Policy Research Institute (PRI), explained that hydrocarbon technology has a role to play in the production of ammonia and urea fertilizers.
“For this reason, if the war is prolonged, there will be a crisis in the fertilizer market at some stage. Fertilizer prices will go up and the government will have to pay more in this case. At present, about Tk30,000 crore is subsidized for fertilizers — that will increase,” he added.
RMG exports safe — for now
The major markets for the apparel products of the country are the EU, the US, Canada and the UK.
However, if the other EU countries surrounding Ukraine get dragged into the war, it will have a major negative impact on the entire garment industry as EU countries account for 60-61% of Bangladesh's total garment exports.
Shahidullah Azim, vice-president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said bilateral trade between Bangladesh and Russia is worth nearly $1 billion, while two-way trade with Ukraine amounts to about $350 million.
“However, further growth of trade with these countries will be hampered. The prices of raw materials imported from these countries will also go up,” he added.
He also said that the price of oil is rising at an alarming rate globally, which will affect the transportation of export-import goods.
“There is a possibility of order cancellations if the war is prolonged. Moreover, shipping may be disrupted due to the war,” he added.
He also said that the textile world is following the fast fashion policy, so if the product shipping is delayed, orders will get cancelled.
Bangladesh exported goods worth $665 million, among them apparel was $593 million in FY21.
A bad time for betting on imported LNG?
According to Moody's Investors Service, global oil and liquified natural gas (LNG) prices are likely to see a sharp rise in the event of a Russia-Ukraine conflict, which would have negative implications for net energy importers.
Moreover, the global supply chain bottlenecks will also be aggravated, adding to inflation pressures.
Mansur said that Bangladesh is now importing LNG again and a prolonged war will lead to a big energy crisis.
Bangladesh is an import-dependent country in terms of energy and the ongoing war has completely destabilized the oil market with hitting the oil price to $100 per barrel.
Energy policy expert M Tamim told Dhaka Tribune that Russia's gas supplies to Europe are now likely to be cut off completely.
“If the crisis continues, fuel prices will rise further and it will have a direct impact on Bangladesh as well. With the increase in fuel price, the cost of power generation will also increase along with transportation costs and subsidies,” he added.
He also said that due to the pandemic, the amount of global stored gas is already very low, now if the supply is reduced, the global production will decrease a lot. This will hamper the industrial sector.
What about Russian projects in Bangladesh?
The first and largest nuclear power plant in the history of Bangladesh is under construction with the technological and financial support and supervision from Russia.
A subsidiary of the country's state-owned Atomic Energy Corporation (ROSATOM), is implementing the project at Rooppur in Ishwardi, Pabna.
If Russia and its various entities come under Western sanctions, the implementation of the Rooppur nuclear power plant project will be uncertain.
This war may also create new complications with Bangabandhu Satellite 2 as a memorandum of understanding (MoU) has already been signed between Glavcosmos, a subsidiary of Russia's state-owned space agency Roscosmos, and Bangladesh Satellite Company.
A Finance Ministry official told Dhaka Tribune the joint European-US embargo on Russia may not be a problem for the first unit of the Rooppur power plant, since everything, including the reactor, has reached Bangladesh.
“But there may be problems in opening and operating the power plant. But the main problem will be to move forward with the work of the second units,” he added.
He also said that it is rumoured that a new ban on chip exports to Russia is coming and if that happens then the Bangabandhu Satellite-2 project may be affected.
Moreover, restricted access to SWIFT will cause major losses for Russia, along with Bangladesh and all other countries transacting with Moscow.
All Russian-funded projects will take longer to be implemented and this will also create a crisis in the import and export of goods from Russia.
