Bangladesh named among countries facing heightened risk from prolonged Middle East war

The Middle East war poses a greater risk to Bangladesh, Pakistan, and Sri Lanka, and to a lesser extent Laos, due to their high dependence on imported energy and limited reserve supplies, according to S&P Global Ratings.

The agency notes that these countries are particularly vulnerable to rising oil prices and potential supply disruptions.

In its base-case scenario, the war is unlikely to have a material impact on the sovereign ratings of these countries.

However, a more prolonged price and supply shock in global energy markets could cause more pronounced credit damage.

S&P Global Ratings, which provides analyst-driven credit ratings, research, and sustainable finance opinions, said such insights are essential for helping market participants translate complexity into clarity and make decisions with confidence.

Pakistan, Sri Lanka, and Bangladesh are showing signs of economic recovery. While progress has been made, sustained high energy prices and potential disruptions to trade and remittances could derail their fragile economies.

Laos is comparatively less exposed due to its reliance on hydropower generation and a more balanced fiscal position.

While still vulnerable to extended energy price and supply shocks, the conditions supporting the positive outlook on its long-term ratings remain intact for now.

"Our ratings on Bangladesh can likely withstand the short-term economic disruptions associated with our base-case scenario," the American credit rating agency said in its report.

However, the country faces mounting risks to growth, inflation, and its external position if the spike in energy prices persists longer than anticipated, S&P said.

The duration of the Middle East conflict and the associated price shock, as well as the physical availability of fuel supplies, will be key determinants of the impact on the country's creditworthiness.

Higher fuel prices are likely to stall the gradual decline in inflation over the next three to six months and could weaken the economy's recovery momentum.

Nearly 50% of Bangladesh's electricity generation is gas-fired, with almost a quarter of its gas demand met through imports.

Meanwhile, the economy is almost entirely reliant on imports for crude and refined oil products.

Oil reserves are likely to last less than one month, after which measures to curb consumption may become more stringent if imports remain constrained.

While the government and national energy companies have recently secured additional supplies of gas, diesel, and petrol, availability could become more limited if the conflict persists.

Officials have moved quickly to implement measures aimed at mitigating the impact of higher fuel prices.

These include a cap on retail fuel prices, a temporary rationing mechanism, reduced operations at fertiliser plants to prioritise gas supply to power plants, and early school closures to manage energy consumption.

The country is already grappling with persistently high inflation, which rose to 9.2% in February from 8.6% in January, alongside a prolonged slowdown in growth following the collapse of the previous government in mid-2024.

The Bangladesh National Party's solid margin of victory in the February 2026 elections, along with a relatively smooth transition from the caretaker government, has reduced the risk of policy paralysis and could help restore policy continuity and political stability after a period of heightened uncertainty.

However, the government's policy options remain constrained by price pressures, the taka exchange rate, foreign reserve targets, and limited revenue-generating capacity.

Bangladesh's revenue-to-GDP ratio is among the lowest of all rated sovereigns, estimated at around 9% for the current fiscal year ending June 2026.

The war also poses an unwelcome headwind to Bangladesh's improving external position. Foreign exchange reserves rose to $29.6 billion as of 12 March, 2026, up significantly from $19.7 billion during the same period in 2025.

The country's current account balance has also improved, supported by strong remittance inflows despite a slowdown in the ready-made garment export sector.

The buildup of a stronger foreign exchange buffer, along with a modest current account surplus so far this fiscal year, will help ease immediate pressures arising from high energy prices.

However, a prolonged conflict could put Bangladesh's economy under strain across multiple fronts, particularly through the import channel, potentially pushing the current account back into deficit depending on the duration and scale of the price shock.