Iran-Israel conflict raises energy shock fears for Bangladesh

Global energy markets are bracing for heightened volatility after a coordinated military strike by the United States and Israel on Iran triggered retaliatory missile and drone attacks targeting Israel and US air bases across the Middle East.

Analysts warn that if the confrontation escalates into a broader regional conflict, it could severely disrupt global energy supply chains, especially through the Strait of Hormuz, a narrow maritime corridor that carries around 20% of the world's oil supply. With the waterway now effectively a high-risk zone, traders are factoring in the possibility of supply interruptions.

Oil prices have already been climbing for weeks amid rising geopolitical tensions. Friday saw crude prices rise by more than 2% as markets reacted to the growing likelihood of military action following inconclusive talks between Iran and the US in Switzerland. Benchmark crude climbed to $67 per barrel on Friday, up from $61 on 17 February. Further escalation could push prices even higher in the coming days.

Why this matters for Bangladesh

For Bangladesh, the Strait of Hormuz is not a distant geopolitical flashpoint – it is a lifeline.

Nearly 90% of the country's primary energy imports, including crude oil, refined petroleum products, and liquefied natural gas (LNG), pass through this narrow maritime chokepoint. Bangladesh relies heavily on Middle Eastern suppliers such as Saudi Arabia, Qatar, and the United Arab Emirates for its fuel needs, making it acutely vulnerable to disruptions in the Gulf.

Any interruption in shipping, surge in war-risk insurance premiums, or physical blockage of the Strait would have immediate consequences for Bangladesh's energy security.

Economic fallout risks

Higher oil prices would directly inflate Bangladesh's import bill, placing renewed pressure on foreign exchange reserves. State-owned energy corporations could face rising subsidy burdens unless domestic fuel prices are adjusted.

An increase in LNG and fuel oil prices would raise electricity generation costs, potentially affecting industrial output and export competitiveness, particularly in energy-intensive sectors.

Analysts say there is also the risk of renewed inflationary pressure if transport and production costs climb in response to higher fuel prices.

Bangladesh currently has limited diversification in energy sourcing and remains structurally exposed to Middle Eastern supply routes. While long-term strategies include expanding renewable energy and exploring alternative LNG procurement channels, such transitions require time and investment.