Bangladesh seeks refining deal with India to secure fuel supply

Highlights:

• Proposal involves a tolling arrangement
• Bangladesh Petroleum Corporation (BPC) to act as the lead agency for technical and commercial negotiations
• Move driven by limited domestic refining capacity
• Experts suggest deal should be treated as a short- to medium-term solution

The government has moved to deepen energy cooperation with India by proposing a government-to-government (G2G) refining arrangement aimed at ensuring a stable supply of petroleum products as global markets remain volatile.

In a letter dated 16 April 2026 and marked urgent, the Energy and Mineral Resources Division under the power, energy and mineral resources ministry requested the foreign ministry to initiate diplomatic engagement with the Indian government.

The communication, addressed to the foreign secretary and copied to the director general of the South Asia wing, a source at the Bangladesh Petroleum Corporation told The Business Standard. 

Foreign ministry officials said the request has already been conveyed to the Indian High Commission in Dhaka, although no response has yet been received.

The proposal comes amid growing concern over fuel supply security, particularly in light of geopolitical tensions in the Middle East.

Proposed tolling arrangement

At the centre of the initiative is a tolling model under which crude oil owned or financed by Bangladesh would be processed in Indian refineries, with Bangladesh paying refining fees and associated logistics costs.

The Bangladesh Petroleum Corporation (BPC) has been designated as the implementing agency and will lead technical and commercial negotiations once formal engagement begins. Officials said the proposal requires priority consideration given its importance to national energy security.

When contacted by TBS, an official from the South Asia wing of the foreign ministry declined to comment, saying the matter involves two countries and is subject to confidentiality.

Strategic rationale

Officials say the move reflects structural limitations in Bangladesh's domestic refining capacity. The country relies heavily on Eastern Refinery Limited, which remains constrained in both scale and technological capability.

With demand for petroleum products rising across power generation, transport, agriculture and industry, the gap between domestic refining capacity and consumption has widened. 

The proposed arrangement with India is therefore being viewed as a strategic effort to diversify supply mechanisms without requiring immediate large-scale investment in domestic refining upgrades. India's extensive and technologically advanced refining infrastructure, capable of processing crude from diverse sources, makes it a natural partner.

Operational framework

Under the proposed model, designated Indian state-owned oil companies would procure crude oil, potentially in coordination with the Bangladesh Petroleum Corporation, and refine it on Bangladesh's behalf. The refined products would then be supplied back to Bangladesh.

The Bangladesh Petroleum Corporation would bear the full cost, including crude procurement, tolling charges and logistics. Officials said this approach would allow Bangladesh to access diversified crude supplies while utilising India's refining capacity.

The Energy and Mineral Resources Division has sought diplomatic facilitation to engage relevant Indian authorities and companies and to establish a platform for technical and commercial discussions.

Benefits and risks

Officials said the arrangement could enhance supply security by reducing exposure to spot market volatility and geopolitical disruptions, while also offering potential cost advantages through access to competitively priced refined fuels.

The model may also improve sourcing flexibility by leveraging India's broad crude procurement network and could be implemented more quickly than expanding domestic refining capacity, which requires substantial investment and long lead times.

However, concerns remain over increased dependence on external infrastructure, which could affect long-term energy sovereignty. Questions around pricing transparency and the need for robust negotiation of tolling fees have also been raised.

Officials noted that reliance on a single regional partner may carry geopolitical risks, particularly during periods of diplomatic strain. There are also concerns that the arrangement could delay investment in domestic refining facilities, including the expansion of Eastern Refinery Limited.

In addition, payments for refining services and logistics in foreign currency could place further pressure on Bangladesh's foreign exchange reserves.

Balancing immediate needs with long-term goals

Energy experts suggest the proposed arrangement could serve as a short- to medium-term solution but should not replace efforts to strengthen domestic refining capacity.

They argue that Bangladesh needs a balanced strategy that combines regional cooperation for immediate supply stability with accelerated investment in local infrastructure, warning that overreliance on external facilities could create long-term vulnerabilities.

The government has also been exploring plans to expand refining capacity and develop energy infrastructure, although progress has been slow due to financing constraints.