Energy crisis deepens as import costs surge by around $800m a month amid Iran war

Bangladesh's energy sector is facing mounting pressure from what analysts describe as a "perfect storm" of global shocks and domestic weaknesses, with additional import costs rising to $760-830 million per month in early 2026.

A study by Lion City Advisory Research, titled Bangladesh Energy Sector: Crisis, Cost and Transition, warns that a sharp rise in global fuel prices following the Iran-Israel conflict is pushing the country towards what it calls a "fiscal emergency".

Within four weeks, Brent crude rose to $105 per barrel, while spot liquefied natural gas (LNG) prices increased by 125% to $22.51 per MMBtu.

The report points to structural inefficiencies in the power sector, particularly in the Bangladesh Power Development Board (BPDB). Installed generation capacity has grown more than fivefold since 2006 to 28,919 MW, but nearly 63% remains idle.

This underutilisation has resulted in annual capacity payments of around Tk38,000 crore.

At the same time, the gap between generation costs and retail tariffs has widened. Blended generation costs are now estimated at Tk18–22 per kilowatt-hour, pushing monthly subsidy requirements to Tk7,500-9,500 crore, more than double the pre-crisis level of Tk3,000-4,000 crore.

The report warns that prolonged high global fuel prices could put further pressure on foreign exchange reserves and Bangladesh's sovereign credit outlook.

A key concern highlighted is the "BAPEX Paradox", referring to weak domestic gas exploration. Despite a target to drill 34 wells in FY2025, only eight have been drilled, increasing reliance on expensive LNG imports.

It notes that the $650 million spent on one month of spot LNG could instead finance 15-20 domestic wells capable of producing gas for more than 15 years.

The study estimates that each additional 10 million cubic feet per day of domestic gas production could save about $82 million annually.

It also highlights the growing competitiveness of renewable energy. Recent utility-scale solar bids stand at 8.27 US cents per kilowatt-hour, or around Tk9.09, significantly lower than heavy fuel oil at Tk26 and diesel at Tk32.53.

However, policy uncertainty remains a major obstacle. The report says the cancellation of the Implementation Agreement (IA) framework has stalled investment and delayed more than 5,200 MW of solar projects. Restoring the framework could unlock $15-20 billion in private investment.

Beyond generation, the study underscores the potential of industrial energy efficiency. Recovering waste heat in sectors such as ready-made garments, textiles and ceramics could generate up to 50 billion cubic feet of gas annually.

Described as "free LNG", this could match the output of 13 to 27 new gas wells without requiring additional imports.

Looking ahead, the report proposes a "Bangladesh Energy Independence Program (BEIP)" to increase the share of renewables to 60-70% by 2040.

Measures include removing import duties on solar equipment, expanding solar infrastructure, promoting rooftop solar in urban areas, and replacing diesel-powered irrigation with solar alternatives.

The study also suggests Bangladesh could become a net exporter of clean energy, potentially earning $500 million to $1 billion annually by supplying surplus electricity to India's northeastern states.

"The question is not whether Bangladesh can afford the energy transition," the report says. "At $105 per barrel oil, Bangladesh demonstrably cannot afford not to transition. Every month of delay is costing the economy up to $800 million."