Bangladesh cannot afford a long US–Israel–Iran War

Wars in the Middle East rarely stay there. For Bangladesh, they arrive quietly—through fuel invoices, shipping delays, pricier food imports, squeezed export margins, and anxious calls from migrant workers abroad. A full-scale confrontation involving the United States, Israel, and Iran would not simply be another geopolitical headline; it would transmit powerful economic shocks into Bangladesh's fragile recovery at a time when inflation remains sticky, foreign exchange reserves are under pressure, and export competitiveness is already being tested.

Bangladesh is structurally exposed to external disruptions. The economy depends heavily on imported energy, industrial raw materials, fertiliser inputs, edible oil, wheat, and capital machinery. Meanwhile, export earnings remain highly concentrated in ready-made garments (RMG). This combination—high import dependence and narrow export diversification—makes the country particularly vulnerable when global conflict simultaneously disrupts energy flows, shipping routes, insurance markets, and financial settlements.

Energy: The first and hardest blow

Energy would be the most immediate casualty. The Strait of Hormuz, a narrow maritime corridor bordering Iran, carries roughly one-fifth of global oil and a significant share of liquefied natural gas (LNG). Any sustained military confrontation in the region would disrupt tanker movements, drive up freight and war-risk insurance premiums, and sharply raise crude oil and LNG prices.

For Bangladesh, the implications are severe. The country imports most of its petroleum products and an increasing share of its natural gas as LNG. Higher global prices would inflate the cost of electricity generation, industrial fuel, irrigation, and transport. The government would face a difficult choice: pass the higher costs on to consumers and industries—fueling inflation—or expand subsidies and strain an already tight fiscal position.

Energy shocks do not remain confined to power plants. They cascade across the economy. When electricity becomes expensive, factories lose competitiveness, transport costs rise, irrigation for agriculture becomes more expensive, and food supply chains weaken. Inflationary expectations then build, eroding household purchasing power and complicating monetary policy.

Supply chains and sectoral import costs

Beyond energy, the war would disrupt global supply chains in ways that raise import costs across multiple sectors.

Fertiliser and agriculture would be highly exposed. Fertiliser production depends heavily on natural gas. Any rise in global gas prices—or a shift in domestic gas toward power generation—would reduce local fertiliser output and force more expensive imports. Higher fertiliser prices raise cultivation costs for rice and other staple crops, feeding directly into food inflation. At the same time, Bangladesh's heavy reliance on imported wheat and edible oil means higher freight costs would quickly translate into higher household food bills.

The textile and garment industry, Bangladesh's export backbone, would face a dual squeeze. The sector relies on imports of cotton, yarn, dyes, chemicals, and accessories. Even when these imports originate outside the Middle East, global shipping disruptions increase maritime fuel costs, container shortages, insurance premiums, and working-capital requirements. Longer lead times and higher input costs reduce exporters' margins, particularly when international buyers resist price increases. For an industry that competes on thin margins, even modest cost escalations can determine whether export orders are secured or lost.

Manufacturing industries such as pharmaceuticals, ceramics, steel, plastics, and consumer goods would also feel the pressure. Pharmaceuticals rely on imported active ingredients; ceramics and steel are energy-intensive; plastics depend on petrochemical derivatives. As global energy prices rise, production costs climb across the board. Domestic producers then struggle to maintain price competitiveness both at home and abroad.

Transport and logistics represent another vulnerable node. Aviation fuel costs would surge, raising air cargo and passenger fares. Shipping lines would add war-risk premiums. Trucking costs would rise domestically. The combined effect would be higher transaction costs throughout the economy, reducing efficiency and slowing trade flows.

Remittances: A fragile cushion

Remittances are one of Bangladesh's strongest macroeconomic stabilisers, and here the Middle East conflict presents both short-term resilience and longer-term risk.

Gulf countries host millions of Bangladeshi migrant workers and account for a large share of annual remittance inflows. In the immediate term, remittance flows may remain stable or even increase if migrant workers send precautionary funds home amid uncertainty. Higher oil prices can also temporarily support economic activity in oil-exporting countries, sustaining labour demand.

However, a prolonged conflict paints a different picture. Infrastructure projects could slow as governments divert spending toward security and defense. Private sector investment may weaken. Construction and service sectors—major employers of migrant labour—could contract. Wage payments may be delayed, and worker mobility restricted. Financial transfer channels might also face operational disruptions.

Such developments would directly weaken Bangladesh's balance of payments at a time when import costs are rising. A simultaneous increase in import bills and slowdown in remittance inflows would intensify exchange-rate pressures and complicate external debt management.

Inflation and macroeconomic strain

The combined energy, food, freight, and input-cost shocks would intensify inflationary pressure. Bangladesh has already experienced imported inflation following the Russia–Ukraine war. A Middle East conflict could produce a similar but potentially more persistent shock because it directly threatens global energy arteries.

Higher inflation would erode real incomes, particularly for fixed-income households and the urban poor. Monetary authorities would face difficult trade-offs between controlling inflation and supporting economic growth. If interest rates rise too sharply, private investment could slow further. If policy remains loose, currency pressure and imported inflation may worsen.

Political and diplomatic balancing

The conflict would also test Bangladesh's diplomatic agility. Dhaka maintains important relationships with the United States, major Middle Eastern economies, Iran, and multilateral financial institutions. The Middle East is not only an energy source but also a lifeline for labour markets.

Bangladesh's policy response must therefore prioritise strategic neutrality rooted in economic realism. Overly strong alignment with any one bloc risks diplomatic and economic repercussions. A calibrated approach—supporting peace, emphasizing international law, and focusing on citizen protection—best serves national interests.

At the same time, Dhaka must intensify practical diplomacy with energy suppliers, labour-hosting countries, and development partners. In times of global instability, economic diplomacy becomes as critical as traditional foreign policy.

What should policymakers do now?

Preparation is essential. Bangladesh cannot prevent geopolitical conflict, but it can reduce vulnerability through timely policy action.

First, authorities should establish an integrated economic monitoring mechanism linking finance, energy, commerce, foreign affairs, and the central bank to assess real-time risks.

Second, energy security must be strengthened through diversified sourcing, expanded storage capacity, and demand management to cushion supply shocks.

Third, advance planning for fertiliser and essential food imports is vital to prevent panic buying during global price spikes.

Fourth, Bangladesh Bank should prepare contingency measures to manage exchange-rate volatility and external financing pressures.

Fifth, export-oriented industries, especially garments, require logistical facilitation, faster port clearance, and working-capital support to remain competitive amid rising costs.

Sixth, overseas missions must strengthen migrant worker protection, ensure continuity of remittance channels, and develop evacuation or emergency response plans if instability spreads.

A war that becomes an economic test

Bangladesh has demonstrated resilience against global shocks before. But resilience should not be mistaken for immunity. A prolonged US–Israel–Iran conflict would transmit economic stress through energy markets, trade routes, labor flows, and diplomatic channels, testing Bangladesh's macroeconomic stability and policy agility.

This is not merely a foreign policy concern. It is an inflation challenge, an energy security threat, a trade-competitiveness issue, and a remittance-stability risk rolled into one.

For Bangladesh, the real battlefield would not be in distant deserts or contested sea lanes. It would be in managing fuel prices, stabilising food markets, protecting export industries, safeguarding migrant workers, and maintaining diplomatic balance.

The prudent response is neither panic nor passivity, but preparation.

Because in an interconnected global economy, distant wars rarely remain distant for long.

M Kabir Hassan is a Professor of Finance at the University of New Orleans, US

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.