Energy security should be the priority in next budget too

Due to the ongoing conflict in the Middle East, concerns have arisen in the global market regarding the supply of energy products. At the same time, the prices of energy commodities, particularly oil, are rising steadily. Already, the price of fuel oil has increased by more than 30%. The direct impact of these developments is already becoming evident in our energy sector.

In the meantime, drivers of various vehicles have been seen standing in queues for hours at filling stations. Due to not receiving the required amount of fuel from filling stations, many transport companies have reduced the number of buses in operation. To save gas, five fertiliser factories have been declared closed. 

In order to conserve electricity and fuel, the Eid ul-Fitr holidays were brought forward, and from Monday, all universities in the country have been declared closed. In addition, the government has issued directives to reduce the use of electric lights and air conditioners, avoid decorative lighting, and implement other measures to save electricity and fuel. Petrobangla has already reduced the supply of LNG to the national grid. Gas supply to power plants has also been somewhat reduced. In other words, the government has initiated a plan for rationing energy products.

However, the reality is that if the ongoing war in the Middle East is prolonged, the existing stock of energy products in the country will soon run out and the energy crisis will intensify. What is particularly concerning is that there is no indication so far that the ongoing conflict will end soon. 

Rather, after targeting Iran's military-related installations for nine consecutive days, the United States and Israel have begun launching intense attacks on the country's oil depots. In response, Iran has also intensified its counterattacks. In such a situation, the highest priority of the new government should be to ensure energy security.

Nearly 62% of the country's energy demand is met through imports. Most of these imports come from Middle Eastern countries. In particular, one-third of the world's oil and one-fifth of liquefied petroleum gas (LPG) pass through the Strait of Hormuz. If Iran completely closes this strait due to the ongoing war, oil prices in the global market will increase at an alarming rate and supply shortages will also grow unexpectedly. As a result, the prices of other essential goods and the cost of imports will naturally rise.

Since our country is heavily dependent on imported energy, the cost of energy will increase as well. In this context, an important question arises: does the country's economy have the capacity to import such expensive energy? The reality is that it does not. What is even more concerning is that importing energy requires dollars, and one of the main sources of foreign currency earnings is remittances. 

Majority expatriate workers are employed in Middle Eastern countries. Due to the conflict there, there is also a risk that remittance inflows to the country may decline. Taken together, the government must focus most seriously on ensuring energy security at this moment.

It should be kept in mind that if the energy crisis intensifies, the country's economy could suffer a major collapse. This is because the primary foundation of the economy is industrial production. And running factories requires a large supply of gas and electricity. Moreover, electricity generation itself depends on primary fuels such as gas, especially liquefied natural gas (LNG).

For several years, the country has been experiencing shortages of energy, resulting in many factories shutting down. If this shortage increases further, the entire production system may effectively become stagnant. Not only that, transportation costs for goods will also increase. The direct impact of this will be reflected in higher commodity prices, which will further fuel inflation. Inflation has been rising for four consecutive months.

In February, it exceeded 9%, the highest level in ten months. And since 2022, persistently high inflation has become a major wound for the economy.

Energy security is not only necessary for industry. The issue of food security for the country's people is also relevant here. For example, the production of Boro rice can be considered. This crop is largely dependent on irrigation. And irrigation requires a large amount of diesel. Given that nearly half of the country's total rice production comes from the Boro season, any disruption to its production would pose a serious risk to food security. Rice is the main staple food for the country's population.

In urban housing, the demand for electricity and gas is very high. In particular, cooking largely depends on liquefied petroleum gas (LPG). This gas is also used in hotels and restaurants. In January this year, when LPG supply was disrupted for various reasons, the level of suffering experienced by the public was well known. 

Even after paying several times the normal price, customers were unable to obtain LPG cylinders. From this experience, it can be assumed that if energy shortages increase further in the future, the housing sector will also come under pressure. In other words, the country will face multidimensional pressure due to the energy crisis.

The government has claimed that there is sufficient stock of fuel and energy in the country. According to experts, if energy imports are disrupted, the existing reserves would last for only two to three weeks at most. 

In such a situation, the government must consider how energy imports can be increased and sustained. It is necessary to ensure that energy can be brought immediately from alternative sources, especially a few friendly countries. In order to pay for higher energy prices, the government must keep enough subsidy cushion in the next budget.

Mamun Rashid is an Economic Analyst and Chairman at Financial Excellence Ltd.

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.