Strangled lifeline: What the Middle East crisis means for Bangladesh's RMG industry

There is a concept in systems engineering called a "cascading failure", which occurs when one localised surge triggers a domino effect of collapses across an entire network. The current escalation in the Middle East — marked by US-Israeli strikes on Iran, the militarisation of the Strait of Hormuz, and the freezing of global shipping routes — represents such a systemic shock unfolding in real time.

For Bangladesh, where the ready-made garment (RMG) sector generates over 84% of export earnings, this is not a distant tremor but a direct hit to our economic nervous system. 

To grasp the gravity of the situation, we must examine the fault lines beneath the surface of the headlines and expose the geopolitical tripwire — the invisible wiring that connects a crisis in the Persian Gulf to a factory floor in Gazipur or the remittances of migrant workers.

Fault line one: The Strait of Hormuz is the world's energy jugular

The Strait of Hormuz is the world's most critical energy chokepoint. Roughly 20% of global oil and 25% of global LNG pass through this narrow waterway every day. 

For Bangladesh, which imports nearly 70% of its energy needs, any sustained disruption here is not a distant risk; it could be a direct blow to the engine room of our economy.

We are already witnessing the early symptoms of that blow within the first week of the escalation. Global oil prices, which hovered near $61 per barrel in mid-February, surged to between $67 and $82 within days of the 28 February strikes on Tehran. Prices have now reached $100, and analysts warn they could cross $200 per barrel if the conflict persists.

That arithmetic matters enormously for a country where LNG currently supplies around 25% of total national gas demand, and where every price spike translates immediately into higher electricity generation costs, more frequent load-shedding, and steeper production bills for every factory connected to the grid.

The deeper concern is that Bangladesh's RMG sector was already reeling from a domestic gas crisis even before the Middle East erupted. Production in industrial belts across Narayanganj, Gazipur, and Savar had dropped to between 30% and 60% of capacity due to gas pressure plummeting to near zero at dozens of textile mills, according to both the Bangladesh Knitwear Manufacturers and Exporters Association and multiple factory operators.

An estimated $70 billion in industrial investment was already under threat. A global LNG price shock layered on top of this pre-existing vulnerability does not merely raise a utility bill — it threatens to push already struggling factories past the point of viability.

Fault line two: The logistics trap

The second fault line lies in the maritime routes to our primary markets. The Red Sea crisis, driven by Houthi attacks since late 2023, had already forced approximately 70% of Bangladesh's apparel exports bound for Europe to reroute around Africa's Cape of Good Hope, adding 10 to 15 days to lead times and pushing freight costs up by 40% to 250%, depending on the route and carrier.

The present conflict has now simultaneously constricted the Strait of Hormuz, where shipping giants Maersk, Hapag-Lloyd, and CMA CGM have suspended operations, leaving more than 150 vessels anchored in the Gulf of Oman awaiting clarity. War-risk insurance premiums have surged by up to 50%.

In the fast-fashion world, where a one-week delay can render a seasonal collection commercially irrelevant, these compounding logistical hurdles are not mere inconveniences — they are competitive disqualifiers. Bangladesh's RMG sector operates on margins that RAPID research estimates at below 4%. 

When shipping costs eat into that already thin buffer, we lose the ability to compete with near-shoring alternatives such as Turkey and Morocco, which are geographically insulated from both the Red Sea and Hormuz disruptions.

"Near-shoring is happening in some cases. Many buyers are placing orders with Turkey, whereas these orders were supposed to come to Bangladesh," one industry leader noted during an earlier round of Middle Eastern tensions. A prolonged dual-chokepoint crisis risks making that shift structural rather than temporary.

Fault line three: The shrinking global buying power

The third fault line is less visible but equally consequential: the psychological and financial impact on Western consumers. War in the Middle East invariably triggers global inflation. When fuel or food prices rise in London, Berlin, or New York, the first spending category households cut is discretionary consumption — and clothing is among the most discretionary of all items.

Data from 2024 already reflects cooling demand, with apparel import prices in the EU and US markets declining by nearly 5% as retailers struggled to entice financially strained consumers. Bangladesh's exports to the United States, which reach approximately $10 billion annually, were already projected to decline by 14% due to shifting US trade policies even before this conflict escalated.

A prolonged Middle Eastern war could accelerate that decline considerably. The BGMEA president has warned that a protracted conflict could shrink household budgets in Bangladesh's key markets. Analysts estimate that even a 5% to 10% decline in global apparel orders could cost Bangladesh's RMG sector between $2.25 billion and $4.5 billion annually.

The blueprint for resilience: Three structural mandates

To survive this cascade, Bangladesh must evolve beyond reactive damage control. What is required are three urgent structural shifts that must now become priorities rather than aspirations.

Radical energy decoupling: Bangladesh can no longer afford to remain hostage to Middle Eastern LNG as domestic gas reserves approach critical lows. To insulate the economy from Hormuz-induced price volatility, the government must accelerate the transition towards renewable energy — potentially through targeted green tax exemptions — while diversifying supply corridors towards more stable partners such as Indonesia and Malaysia.

De-risking the logistical corridor: This crisis has exposed Bangladesh's near-total reliance on the Chattogram–Suez route as a dangerous single point of failure. Elevating logistics to a national security priority means transforming the Matarbari deep-sea port from plan into reality, drastically improving Bay Terminal efficiency, and expanding air-freight capacity to bypass the soaring costs associated with longer rerouted maritime lanes.

Aggressive market reorientation: Trade diversification must evolve from a corporate buzzword into a decisive instrument of economic diplomacy. By cultivating deeper ties with the rising middle classes of ASEAN and Latin America, Bangladesh can build a strategic buffer against the thinning margins of traditional Western markets. These frontiers must be secured now, while the country still retains leverage in negotiations.

Bangladesh's garment sector has proven its resilience through pandemics, political upheavals, and financial shocks. But resilience is not the same as immunity. Our growth story will mean little if the energy and logistics infrastructure beneath it — the system that few notice until it fails — is allowed to collapse.

It is time for policymakers to act with the urgency this moment demands: reinforce the circuit before the system goes dark.

Sketch: TBS

Dr Sabbir Ahmad is an engineering and corporate leader with extensive global experience in digital connectivity, energy infrastructure, and sustainable development. He can be reached at sabbir@ieee.org. 

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.