Bangladesh at a strategic crossroads

The world is passing through one of the most turbulent periods in recent decades. The US-Iran conflict, the continuing war in Gaza and wider instability in the Middle East have created a dangerous environment for global security and commerce.

The Strait of Hormuz, through which a substantial share of the world's seaborne energy trade normally passes, has become a major security flashpoint. The International Maritime Organization has warned that safe passage cannot currently be assured and that seafarers face unacceptable risks.

The impact extends far beyond the Middle East. Disruptions around Hormuz have reduced shipping through the waterway, while oil markets have reacted to heightened risks. For Bangladesh, which depends heavily on imported fuel and international shipping, prolonged instability means higher transport and production costs, pressure on foreign exchange and, ultimately, higher prices and inflation.

The Russia-Ukraine war has added another layer of strategic uncertainty. It has transformed Europe's security environment and exposed vulnerabilities associated with dependence on external energy supplies. The lesson is clear: energy security is no longer merely an economic issue; it is an integral component of national security.

The Indian Ocean is becoming more strategic

These developments are particularly significant for Bangladesh because of its geographical location and increasingly important position in the Indian Ocean Region. The Bay of Bengal is becoming an arena of strategic competition and cooperation involving India, China and other regional and extra-regional powers. Energy exploration, fisheries, seabed resources, maritime connectivity and shipping routes are all acquiring greater importance.

For Bangladesh, this presents both opportunities and risks. Its location can make it a significant maritime, commercial and connectivity hub. But geography alone does not create strategic advantages. It must be supported by capable institutions, sound diplomacy, maritime awareness, infrastructure and a coherent long-term national strategy.

Economic transformation will ultimately depend on human capital. Bangladesh cannot compete in a rapidly changing global economy with a workforce trained primarily for yesterday's industries.

When major shipping routes become unsafe, vessels may take longer routes, increasing freight, insurance and delivery costs. Bangladesh's import-dependent economy therefore remains vulnerable to geopolitical events far beyond its borders.

A new government, an old set of challenges

Against this turbulent international backdrop, Bangladesh has entered a new political phase. Following the national election on 12 February 2026, a new government took office on 17 February. It has inherited a difficult domestic environment while confronting a rapidly changing external one.

Its challenges are interconnected. Political stability, economic recovery, institutional reform, corruption control, education, employment and foreign policy cannot be treated as separate compartments.

The economy is perhaps the most immediate concern. The World Bank has described Bangladesh's near-term outlook as challenging, citing weak growth, persistent inflation, elevated poverty and financial-sector stress. It projects GDP growth at 3.9% in FY26, with gradual recovery thereafter. A prolonged Middle East conflict could further increase inflation, energy subsidies and import costs.

The banking sector requires particular attention. Years of governance weaknesses, politically influenced lending and distressed assets have created significant vulnerabilities. Five troubled Islamic banks have been placed in a merger process, while the World Bank has approved $450 million to strengthen the banking sector, including deposit protection, Bangladesh Bank's supervisory capacity and bank-resolution mechanisms. The challenge is therefore not to inject money into troubled institutions, but to restore confidence, accountability and sound governance.

The corruption challenge

Economic recovery will also depend on institutional integrity. Bangladesh's score in the latest Corruption Perceptions Index is 24 out of 100, placing it 150th among 182 countries.

Corruption should be treated as a strategic issue, not merely a governance problem. It raises the cost of doing business, discourages investment, weakens public institutions and reduces citizens' confidence in the state.

The new government therefore has an opportunity to move beyond rhetoric and establish credible mechanisms for transparency, accountability and institutional independence. Strengthening the Anti-Corruption Commission, improving public procurement, ensuring effective financial oversight and expanding digital government services can reduce opportunities for corruption. But where corrupt practices are deeply embedded, reform will require sustained political commitment rather than short-term campaigns.

Education and human capital

Economic transformation will ultimately depend on human capital. Bangladesh cannot compete in a rapidly changing global economy with a workforce trained primarily for yesterday's industries.

Artificial intelligence, automation, advanced manufacturing, digital services and the green economy are changing employment. Bangladesh needs an education system that places greater emphasis on science, technology, critical thinking, communication, vocational competence and innovation.

Education reform must also be linked to employment. Technical and vocational education should be aligned with industry, while universities should periodically review programmes to keep curricula relevant. Rather than simply increasing the number of graduates, Bangladesh must produce graduates with the skills required by the economy of the future.

From vulnerability to opportunity

Despite these challenges, Bangladesh possesses strengths: a large and young workforce, strategic geography, a growing domestic market, an established export base and a substantial diaspora.

Export diversification should become a national priority. The ready-made garment sector remains the backbone of exports, accounting for roughly four-fifths of merchandise exports. But leather, footwear, pharmaceuticals, light engineering, plastics, electronics and digital services offer opportunities for expansion.

Bangladesh should also seek greater foreign investment by improving the business environment, ensuring policy predictability and strengthening infrastructure. Investors are attracted not merely by low costs but by political stability, reliable institutions, efficient logistics and the rule of law.

Its strategic location can likewise become an economic asset. The Bay of Bengal, regional connectivity and maritime trade provide opportunities to position Bangladesh as a bridge between South Asia and Southeast Asia.

Strategic autonomy, not strategic isolation

In foreign policy, Bangladesh should avoid being drawn into exclusive geopolitical camps. The emerging international order is increasingly multipolar, and Dhaka must maintain constructive relations with India, China, the United States, Japan, the European Union and other important partners.

This does not mean neutrality on every issue. It means pursuing a pragmatic foreign policy based on national interest, economic priorities and strategic autonomy.

Bangladesh should carefully assess the security, diplomatic and economic implications of any emerging regional security architecture before deciding whether and how to engage with it. The recently signed Mecca Joint Defence Agreement between Saudi Arabia, Türkiye and Pakistan could influence security dynamics in the Middle East and beyond. Any involvement must be viewed from both economic and security perspectives.

Bangladesh should also strengthen its maritime diplomacy. Its engagement with Saudi-led maritime security initiatives marks a new dimension in the country's diplomatic landscape. Protection of freedom of navigation, maritime trade, fisheries, seabed resources and the wider security of the Bay of Bengal should receive greater attention. A stronger maritime outlook would complement Bangladesh's economic ambitions.

The strategic moment

Bangladesh's immediate task is to stabilise the economy, restore confidence in institutions and consolidate political stability. Its medium-term task should be institutional reform, export diversification, human-capital development and attracting productive investment. Its long-term objective should be to emerge as a resilient, economically competitive and strategically autonomous state in the Indo-Pacific.

The choice before the new government is larger than managing the next budget or responding to the next political crisis. It is about defining Bangladesh's place in a changing world.

Geography has given Bangladesh a strategic location. Demography has given it a large human resource base. The Bay of Bengal has given it maritime opportunities. But converting these advantages into national power will require capable institutions, political stability, economic discipline, energy security and a clear strategic vision.

Bangladesh cannot control the conflicts unfolding around it. But it can control how prepared it is to withstand their consequences—and how effectively it can turn its strategic location and human potential into opportunity.

That is the strategic moment Bangladesh faces today.

Brig Gen (Retd) Mustafa Kamal Rusho is a Research Director in Osmani Centre for Peace and Security Studies.

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.