How Gulf tensions expose Bangladesh's energy vulnerability?

The Strait of Hormuz, one of the most important oil chokepoints in the world, has effectively become a high-risk area due to the conflict between Israel and Iran. Nearly 20% of global oil and LNG flows through the Strait of Hormuz. It has rapidly become a geopolitical flashpoint after tensions surged between Israel and Iran. 

Following joint US–Israeli strikes on Iran in early 2026, Tehran's threat to target vessels has paralysed this critical energy corridor. Tankers are idle offshore. Insurers are retreating. Shipping traffic has decreased significantly, indicating the rapid unravelling of energy supply chains under stress. 

Shipping disruptions are impacting global logistics. According to some estimates, freight costs from the Middle East to Asia have risen significantly, reaching as high as $12 million per voyage. Hull-insurance premiums, which cover war-related risks, have increased from 0.25% of the vessel's value to 1–3% of the vessel's value. Such cost increases are unlikely to be temporary, as risk-averse behaviour by insurers and shipping firms tends to persist beyond immediate conflict periods.

For Bangladesh, the impact is immediate and severe. Heavily reliant on imports passing through this chokepoint, the country now faces surging freight costs, rising insurance premiums, and higher energy prices. What seems like a distant conflict is actually a direct economic shock. Yet this moment is more than a crisis of disruption; it is a crisis of design.

The shock reveals a deeper truth: Bangladesh's energy vulnerability is structural, not incidental. Years of relying on imported energy, along with slow progress toward renewable alternatives, have tied the economy to volatile global currents. When those currents turn turbulent, the exposure is immediate and unforgiving. This is not just a story of blocked routes but of a system built without enough resilience, now tested at its limits.

When geopolitics drives prices: Energy shocks and macroeconomic strain

In the international arena, the global energy market appears to be becoming more volatile. Brent crude oil prices have surged to $114.81 per barrel, with further increases expected if disruptions persist.

The cost of LNG has also increased significantly in the spot market ($23–$28 per mmBtu). These have implications not only for electricity generation but also for fertiliser, transportation, etc. In the global energy market, it is increasingly geopolitical rather than traditional supply-and-demand factors that are driving price movements.

This indicates a structural shift in the global energy scene. Given today's increased global interdependence, the current Gulf crisis appears more severe than the energy shocks of the 1970s.

Bangladesh's exposure: From global conflict to domestic trauma

Generally, energy remains the lifeblood of any economy. The financial implications are already evident. Bangladesh's energy import bill has risen significantly in recent years, including an increase of over 10% in the latest fiscal period. It is also of concern that an increase in global oil prices by even $10 to $20 will add between $900 million and $1.8 billion to import bills. 

According to the central bank of Bangladesh, energy import bills have accounted for around a quarter of the country's import bills in recent years. Hence, fuel price fluctuations have already become a direct threat to the macroeconomic stability of the country, as the manufacturing and export industries are highly energy-intensive. The country's increased import bills will exert pressure on its foreign exchange reserves and the value of the domestic currency. 

Macroeconomic fault lines: Inflation, reserves, and policy trade-offs

An increase in fuel prices will also raise the cost of electricity generation. Policymakers will face a crucial trade-off: either raise electricity prices or subsidise it. The former will lead to higher inflation in the country, and the latter will lead to financial stress. The higher energy costs will also raise transport and production costs across sectors of the economy, thereby increasing the cost of living in the country.

Apart from this immediate effect, the prolonged nature of the energy shocks could further affect the current account deficit and foreign exchange reserves, making macroeconomic management more complex. In this context, the pressures could constrain Bangladesh's efforts to stabilise the macroeconomy.

This, again, highlights the lack of a strategic petroleum reserve system, a common measure of many countries with high energy import dependence. Many countries have a strategic reserve equivalent to several weeks or even months of consumption, offering an essential buffer against disruptions, a feature lacking in Bangladesh.

Limited buffers in a high-risk system

Domestically, Bangladesh's energy system offers limited flexibility. Natural gas contributes to producing an overwhelming proportion of electricity. Transport and other critical sectors are heavily dependent on imported fuels. The country's fuel reserves are limited. In some cases, they are sufficient only for a few weeks.

Given this structural constraint, there is a significant risk of a short-term interruption. Although the authorities claim that alternative sources would be sufficient for short-term stability, a prolonged disruption would lead to shortages and rationing.

This, again, highlights the lack of a strategic petroleum reserve system, a common measure of many countries with high energy import dependence. Many countries have a strategic reserve equivalent to several weeks or even months of consumption, offering an essential buffer against disruptions, a feature lacking in Bangladesh.

In response to these pressures, emergency measures have been put in place, including fuel purchase limits and the procurement of LNG from the spot market. Temporary adjustments have been made to fertiliser plants to prioritise power generation.

There is now greater recognition of the need for demand-side management, including energy conservation and temporary load adjustments, in industrial sectors. These actions can mitigate the situation in the short-term but may be considered reactive and unsuitable for long-term energy resilience. 

The economic implications of this situation are now being felt across export-oriented industries. These industries are facing higher production costs, with shipping disruptions constraining export operations and delaying shipments.

This will, over time, undermine Bangladesh's competitiveness in the global marketplace, particularly in energy-intensive sectors. With increased import costs, the strain on foreign exchange reserves will only intensify. The key factor at play here is the increased reliance on imported LNG, which ties energy costs directly to fluctuations in global fuel prices.  

Essentially, Bangladesh is paying the price for an energy model built on short-term supply adjustments rather than long-term security. The bottom line, therefore, is that the crisis is a warning. Bangladesh's strategic vulnerability stems from its heavy reliance on a single energy import route. 

A policy roadmap: From vulnerability to resilience

To address this issue, a multi-pronged policy response that includes supply diversification, strategic reserves, and renewable energy development is required. The sequencing of this response, starting with strategic reserves and supply diversification, will be critical for managing short-term risks and facilitating long-term transitions. The government's priority should be developing a strategic petroleum reserve of at least 30 days' supply over the next three years. 

Additionally, expanding renewable energy, building strategic fuel reserves, and diversifying energy imports beyond the Middle East are required. African countries such as Nigeria and Angola can serve as alternative suppliers. Regional energy integration and electricity trade can also be helpful in this regard. Such integration and long-term supply arrangements will be critical for building resilience against future geopolitical disruptions.

In a world where uncertainty is the only sure thing, energy security can no longer be a secondary issue. In the face of such a reality, it is no longer a question of whether Bangladesh is vulnerable but whether the country will act before the next shock arrives.

Sketch: TBS

Sakib Bin Amin is an Associate Professor of Economics at North South University.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.