Policy reality in a supply-constrained world

The war in the Middle East is drifting towards a prolonged, globally disruptive stalemate.

The Gulf region is a place where business, geopolitics, energy and immigration meet. A global energy crisis of unprecedented scale is in the making. The cost of international trade has spiked.

While this situation may not amount to mutually assured destruction, it resembles a high-stakes game of brinkmanship, obscured by uncertainty, where a simple misreading of intentions could spark a much broader regional crisis.

The most likely course is a pattern of intermittent escalation – periods of confrontation punctuated by tactical pauses – without any lasting resolution in sight.

As these challenges evolve, the line between routine policy decisions and urgent crisis management becomes ever more critical.

Trade-offs, rationing and triage

Trade-offs are like budgeting a limited income; rationing is water available only a few hours per day; and triage is a lifeboat with too many passengers – some are left behind.

In normal times, economic management is a luxury of choice. Policymakers can debate whether to build another metro or expand Chattogram port – trade-offs, yes, but among opportunities. Constraints shape decisions; they do not suffocate them.

Hard times are different. When fiscal space collapses and global trade evaporates, the policy menu shrinks from "which opportunity to pursue" to "which essential function to sacrifice".

It stops being a balancing act and starts resembling Sophie's choice – every option is painful.

When energy, fertiliser, minerals, dollars or credit cannot be obtained, even at higher prices, policymaking shifts from balancing choices to managing scarcity.

Rationing starts when supply cannot meet demand and prices are prevented from rising by political or administrative constraints.

Distribution moves from markets to queues, quotas or official discretion. Access remains, but people pay with time, uncertainty or informal means.

Triage takes over when rationing fails – supply is insufficient for everyone, forcing policymakers to decide which needs go unmet. Some sectors get less; some get nothing.

This pattern is mirrored in the macroeconomic landscape. Normally, policymakers balance inflation and growth. In tougher times, they use import controls – macroeconomic rationing.

Severe shocks force outright prioritisation: macroeconomic triage. During crises, resilience outweighs speed. The cost of inaction rises.

Trade-offs can be debated and rationing managed. Triage demands candid recognition. Each requires distinct tools, strategies and narratives. The key is recognising which is which.

The shock-absorbing periphery

Bangladesh is among the vast majority of countries that sit in the global periphery of power yet at the very centre of global vulnerability, absorbing every external shock from oil to freight to food.

Their economies are wired into the world's markets, condemned to feel every tremor of a war in which they have little voice.

This asymmetry shows up on the streets: fuel queues stretch across cities as rationing begins even before any real shortage arrives.

Consumers are paying not just the monetary price of petroleum but the cost of waiting, feeding panic buying and black-marketeering.

When those willing to bear both the money and the time cost still return empty-handed, rationing blurs into triage.

As one weary ride-share biker put it: "I visited two pumps on Friday, but they had already run out."

Triage is clearest in energy and fertiliser: the state must allocate scarce supplies.

Agriculture is at risk, as staple crops depend on fertiliser mostly imported from the Gulf or made with Qatari gas. With five of six urea plants offline due to gas shortages, domestic output is unreliable amid high global prices and delayed imports.

The main oil-producing states – Iran, Saudi Arabia, Qatar, the UAE and Bahrain – also dominate fertiliser production, now restricted by the Strait of Hormuz closure.

Macroeconomic triage risks are rising. Pressure on the balance of payments is destined to mount and, as the government seeks to cushion the blow through subsidies, on public finances as well. Financial sector distress will exacerbate.

The trade-offs involved in managing the exchange rate and utilising reserves will become increasingly complex.

The unforgiving fiscal policy trade-offs will tighten.

How much deficit can be financed before inflation surges further? How much borrowing is sustainable without creating future stress? Which subsidies and transfers can be rationalised without aggravating vulnerabilities?

These feasibility questions – what can be funded, maintained or deferred – define policy limits. Ignoring this arithmetic leads to unsustainable outcomes.

The global practices

If experience is any guide, the real contest now is not about speed but stamina – the ability to stay upright as the shocks keep coming.

Across income groups, governments are confronting the energy and shipping shock by rationing scarce fuel, food and foreign exchange; triaging which sectors and households receive protection; and navigating heightened inflation, currency and fiscal trade-offs.

The mix of policy tools varies sharply depending on state capacity and political constraints.

High-income countries largely allow prices to perform the rationing, cushioning the impact with targeted transfers, temporary tax cuts and strategic reserve releases.

These measures help preserve market functioning and avoid difficult-to-administer explicit quotas.

Middle-income importers, facing tighter fiscal and external constraints, employ a hybrid approach: partial pass-through of energy prices, selective subsidies for politically important groups, prioritisation of foreign exchange for fuel and food, and occasional power or fuel rationing.

Low-income and fragile states fall back on visible triage during global crises – such as the price spikes triggered by the Iran war – because these are the only instruments they can deploy at speed and scale.

When fuel, food and foreign exchange markets convulse, governments with thin reserves, shallow financial sectors and weak administrative systems struggle to execute targeted or market-based responses.

What they can do is ration, queue, restrict and rotate – blunt but administratively feasible tools under stress.

In hard times, capacity – not preference – determines policy: states reach for whatever interventions they can execute quickly.

But crises also widen the door for opportunists, inviting rent-seeking, insider deals and the quiet repurposing of emergency powers for private gain.

The hard logic of crisis governance

When global shocks exceed our ability to control events, the practical priority becomes keeping essential systems operational – ensuring fuel and food supplies remain uninterrupted, carefully managing reserves, and protecting vulnerable groups as effectively as possible.

Effective crisis management begins with a candid assessment of what the state is truly capable of delivering. 

Governments are frequently compelled to do less rather than more in times of distress.

They must resist the urge to impose controls that can create additional complications.

The opportunity lies in leveraging the urgency of the situation to advance overdue reforms.

There are no easy answers. Choices are rarely straightforward – only the duty to sustain the system until recovery becomes attainable.

Zahid Hussain is a former lead economist of World Bank, Dhaka Office