Oil jumps on Israel-Iran tensions – will Bangladesh's energy and exports suffer?

Global oil prices soared by over 10% shortly after news broke of Israel's attack on Iran. The rising cost of oil impacts everything—from the food on our plates to the cost of travel.

For a country like Bangladesh, heavily reliant on both imports and exports, the implications of an Israel-Iran conflict—and the resulting oil price shock—are serious. How will Bangladesh navigate the tough road ahead?

Will the fallout be limited to our energy supply, or could the ripple effects hit our exports too, stretching from North America to Europe, if global shipping lanes face disruption due to the war?

TBS spoke to policymakers, energy analysts, global trade experts, and business leaders to get their views on the Israel-Iran conflict and its broader economic fallout.

Power, Energy, and Mineral Resources Adviser Muhammad Fouzul Kabir Khan said, "The Israel-Iran war is very bad news for a country like Bangladesh, whose energy security largely depends on imports, as the oil price is already soaring."

"If oil prices escalate in the global market consistently, we will be in trouble. If the situation goes out of control, which is extremely unlikely, we will feel the heat. I don't see any major problem in the near term," he said.

"We would absorb the shock of up to a Tk18-20 hike per litre, but if it escalates further, then we would be in trouble. We are safe for up to July, as we purchased oil in May for June and July consumption," the adviser said.

Fouzul Kabir said the plan to reduce oil prices further will face a setback because of the unexpected happening in the Middle East. 

He said, "We were planning to decrease the oil price further, as our price of Tk 18-20 per litre is lower than the international market, but now we have to observe the situation, which ultimately holds back the capacity of oil price downward adjustment."

Bangladesh has secured a six-month long-term oil supply deal from July to December, which will help shield it from sudden price spirals, as in the next supply, the index will vary, not the premium, which ultimately determines the oil price. 

He said, "Under the long-term contract, there are two elements — one is premium and the other is index. Premium is fixed, which will give us comfort. Because of the volatility, the index would change. Despite a possible oil price index change."

"If the volatility of the index continues from July onward, we will be affected. If the index changes a bit, we will not be severely affected because of the cushion we have on oil pricing over the Indian price, as our price is Tk 18-20 less than the Indian price, which gives us leverage in adjusting future oil prices," said the advisor.

Another concern for Bangladesh is the price of liquefied natural gas (LNG). Since LNG and other primary fuel prices are closely linked to global oil prices, a sustained rise in oil prices is likely to push LNG prices higher as well, exposing Bangladesh to greater vulnerability due to its price sensitivity.

Given that oil prices influence all major fuel costs, including LNG, the key question now is: What lies ahead for Bangladesh's LNG imports amid the looming price spiral?

Responding to this, the energy adviser said, "We won't face a major issue with fuel oil prices, but LNG will feel the heat as we have to procure it from the spot market."

Potential price hike prompts questions on LNG import strategy

When asked whether the government would scale back LNG imports in response to the anticipated price hike, Fouzul Kabir said, "We are not thinking along those lines yet. We need to monitor the market closely before making any decision."

Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue (CPD), said the Israeli attack on Iran triggered the oil price spike, and it's now a wait-and-see situation on whether the trend continues.

"We have to see the nature of Iran's retaliation and how much Israel goes further after the Iranian attack, and how the other Middle Eastern countries and the USA react. Combining all of those things, things can go either way, escalation or de-escalation," he said.

"As a fuel-import-dependent country, this oil price hike will cause pain to our country. On top of that, the oil price hike will cause a bad impact on the trade balance and current account balance if the aftereffect is sustained," he continued.

In the war of tit-for-tat, maritime shipping routes will also be seriously affected, which will escalate the import and export costs, ultimately reducing competitiveness. 

Mustafizur Rahman said, "We have to wait to see whether this is a medium-term sustained trend or hiccup, but certainly it is a big warning for our trade and commerce." 

With the US statement of not participating in the Israeli attack on Iran, he said, "The US will pressurise Israel not to escalate further, which will be a relief for global businesses." 

He said, "If the situation escalates further, it will not only impact the oil price but also the very commodity we consume every day, as the oil price is the barometer of commodity prices in the global market." 

'A major concern for Bangladesh's Exports'

BGMEA President-elect Mahmud Hasan Khan Babu has expressed serious concern over the impact of the Israel-Iran conflict on global oil prices and its broader implications for Bangladesh's export sector.

He warned that the fallout from the conflict could disrupt global supply chains, affecting countries like Bangladesh.

"This is a major concern for our exports," Babu said. "We are already dealing with delays and extra costs due to the Houthi attacks in the Red Sea, which forced us to reroute shipments."

He added that renewed instability in the Red Sea and Gulf region could lead to further disruptions in shipping lines, worsening port congestion and delaying cargo handling.

"If shipping routes are hampered, our efforts to ease congestion at Chattogram Port will be undermined," he noted. 

BGMEA plans to send a letter to the authorities requesting increased resources at the port to expedite cargo unloading.