Global energy storm: Let’s hope for the best, prepare for the worst

Highlights:

• US-Israel war disrupts Strait of Hormuz oil, gas flows
• Bangladesh faces costly spot fuel purchases, supply chain strain
• Government avoids price hikes, increases subsidies and fuel imports
• Asian countries adopt varied measures: hikes, rationing, conservation
• Global energy crisis worse than past shocks, says IEA
• Bangladesh risks fiscal strain, remittance loss, and food insecurity

Since the US-Israel war against Iran disrupted oil and gas flows from the Middle East through the Strait of Hormuz, Bangladesh, like all energy-importing countries, has been struggling to maintain its domestic primary fuel supply chain. Shipment deferrals and force majeure declared by major Gulf suppliers, including QatarEnergy, prompted the country to rush for costly fuel from the spot market.

However, the government has decided not to hike fuel prices, shielding citizens from the global price shock, although jet fuel prices have been increased to keep pace with global trends. To address the initial pressure, the government introduced fuel rationing at pumps, but relaxed it ahead of Eid journeys to keep public transportation smooth.

The supply disruption from the Middle East is costing Asia dearly as most countries in the region depend almost entirely on Gulf oil and gas. With limited reserves depleting fast and fresh supplies nearly stalled, developing countries are scrambling to roll out measures to curb demand and conserve fuel. Some countries have raised domestic fuel prices in response to global surges, while others have decided not to pass the higher costs on to citizens.

India raised the price of premium petrol (higher-octane fuel) by more than Rs2 per litre and industrial diesel by about Rs22 per litre, but kept prices unchanged for regular petrol and retail diesel used in public transport and standard vehicles. Officials claim the increase will affect only 3-4% of petrol sales and will not directly impact most consumers.

Pakistan had approved a 55-rupee per litre hike in fuel prices, but put the decision on hold as it did not want to pass the burden on to the people before Eid. It slashed salaries for ministers and members of parliament, extended school closures, introduced work-from-home and a four-day working week in government offices, and cut fuel bills for government vehicles.

Sri Lanka introduced a fuel pass for motorists and declared a three-day weekly closure of public offices to conserve fuel.

Egypt hiked oil and gas prices and shortened evening shopping hours.

The Philippines declared a state of national energy emergency, which authorises the government to take urgent decisions quickly to ensure energy stability. Local prices of diesel and petrol have more than doubled since the Middle East war.

Developing countries that are subsidising domestic fuel prices to protect citizens from global surges are less likely to sustain the strategy for long, given their limited fiscal buffers and spiralling public debt.

With its booming EV industry, China is better placed to cope with – even gain from the ongoing fuel supply crisis. Apart from holding the world's largest oil stockpiles, China is the world's biggest solar and wind power producer. Electric vehicles, which account for 12% of its registered cars, cut China's fuel consumption by 10% last year – a lesson for other Asian countries to insulate from such fuel shocks.

Developed countries are also not without worries.

Japan, though it has reserves sufficient for nearly a year's consumption, has increased domestic fuel prices but decided to subsidise fuel dealers to bring prices back to pre-war levels.

As fuel prices jumped in the US, the Trump administration came under pressure to cut gasoline taxes to offer consumers some relief. Two Democrat senators sought legislation seeking elimination of federal gas tax to ensure that Americans "are not footing the bill for Trump's war with Iran".

As gas and oil jumped in Europe, countries are adopting measures such as fuel tax cuts and price caps to cushion the shock. Spain reduced VAT on all forms of energy from 21% to 10%.

Avoiding a direct subsidy, Germany has planned to allow petrol pumps to raise prices only once a day, at 12 noon, while Italy and Portugal plan to use extra VAT revenue generated from higher fuel prices to compensate consumers.

French company TotalEnergies announced price caps for diesel and petrol for this month.

The International Energy Agency has termed the ongoing energy crisis worse than the twin oil shocks of the 1970s and the 2022 Russia-Ukraine war combined.

At least 40 energy facilities across nine countries have been severely damaged in the conflict, IEA chief Fatih Birol said.

In response to the global emergency, the energy agency announced the release of 400 million barrels from emergency oil stockpiles held by its members and proposed various conservation measures for governments.

Bangladesh struggles to stabilise supplies

A fragile fiscal buffer, caused by slow revenue growth and rising public debt, leaves Bangladesh with limited options to handle such an emergency. The rising import cost of nine LNG cargoes purchased from the spot market has added Tk4,500 crore to state-owned Petrobangla's pre-war budget, further straining the country's foreign exchange reserves.

The government has decided to increase fuel imports by 25% this year to tackle potential supply disruptions, Energy Minister Iqbal Hassan Mahmood said on 23 March. Although purchased at higher cost from the spot market, consumer-level fuel prices have so far remained unchanged. How long the crisis will persist is unknown, but the government will continue fuel subsidies "as long as possible", considering people's purchasing power, the minister said.

State Minister for Energy Aninda Islam Amit said fuel availability until April has been ensured and the government is now working to build a 90-day reserve.

Around 80 countries have raised fuel prices, but Bangladesh has so far refrained from hiking domestic prices to prevent spillover effects on electricity, transport and food costs, he said on Friday in Jashore.

The junior energy minister said Bangladesh is spending Tk167 crore daily on fuel subsidies to ease public pressure.

Growing subsidy spending will remain a key concern for financial bureaucrats while crafting the next fiscal year's budget – the first for the new BNP government, which faced global energy shocks just two weeks after taking office.

Amid poor revenue performance, the previous interim government drastically cut development expenditures to balance the books. The new government is obliged to move forward with its election pledges – creating jobs, improving health and education, and extending social safety benefits to farmers and low-income families – all of which require an expansionary budget next year.

But ground realities will make it difficult for the government to loosen its belt. If interest rates remain high, investment will not gain momentum. Inflation remains sticky, and fresh danger looms from surging global fuel prices.

Bangladesh has so far managed the initial shocks without significantly disrupting public life and explored all possible avenues, even turning to non-traditional sources such as Nigeria and Kazakhstan amid uncertainties over regular Middle Eastern supplies. It secured additional diesel supplies from India through a pipeline. The private sector is turning to the American market to source LPG, primarily used in household cooking cylinders.

Bangladesh has sought an additional $2 billion from global sources including the World Bank and the International Monetary Fund mainly to meet rising fuel import bills, prime minister's Adviser Rashed Al Mahmud Titumir earlier said.

But the fallout is not limited to fuel. The Gulf is home to several million Bangladeshis, whose remittances are a major source of foreign exchange reserves. Amid Iranian attacks on oil and other sites, the region's image as a safe hub for finance and tourism is already at stake. A prolonged war in the Middle East may slow economic growth there, reducing employment opportunities and delivering a severe blow to Bangladesh's overseas employment and remittance inflows.

The Middle East is also a key source of Bangladesh's fertiliser imports, channelled through the Strait of Hormuz. If the war continues, fertiliser flows may be disrupted, putting the country's food security at risk. Officials have said stockpiles are sufficient to meet demand until June, covering the main Boro crop season.

However, imports must be secured for the next major season, Aman, as gas shortages had already led to persistent shutdowns of major domestic urea factories even before the Middle East war broke out.

The news that Bangladesh, along with some other countries, was granted safe passage by Iran through the Strait of Hormuz offered some relief for fuel supply worries. However, this was overshadowed by Iran's subsequent announcement that shipping "to and from ports of allies and supporters of the Israeli-American enemies" would be prohibited through Hormuz.

A US proposal to end the war and Iran's conditional response, amid diplomatic efforts to bring the warring nations to the negotiating table, have been overshadowed by continued strikes and threats from the US, Israel and Iran.

As long as the war persists, Bangladesh – like much of the world – will have to manage a crisis not of its making. The immediate shock has been contained through subsidies, rationing and emergency sourcing. But these are short-term buffers. Without diversifying energy sources, strengthening reserves and easing fiscal pressure, the country risks facing deeper economic strain if the conflict drags on. For now, stability has been preserved – but at a rising cost.