US-Israel war on Iran has come as a big economic jolt for Bangladesh as the nation is heavily reliant on imported fuel
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NEW DELHI — The US-Israel war on Iran has come as a big economic jolt for Bangladesh as the nation is heavily reliant on imported fuel and remittances from workers in the Middle East, according to a report in the Dhaka-based The Daily Star newspaper.
According to economists, the crisis due to the war risks setting off a chain reaction: rising energy prices, disrupted trade flows, weakened export competitiveness, turmoil in the migrant labour market and remittance inflows, higher inflation, and renewed pressure on foreign exchange reserves amid a constrained fiscal space, the report states.
It cites Zahid Hussain, former lead economist of the World Bank’s Dhaka office, as saying that Bangladesh’s economic exposure could unfold through three channels: energy, the dollar, and trade and finance.
“He compared the potential shock of the war to an earthquake rather than a passing storm,” the report states.
The most immediate and potentially severe impact of the Iran war is on global oil markets with Brent crude trading at $88 barrel after having surged to a four-year high of $119. This is a big jump compared to around $72 per barrel before the outbreak of the war.
Major shipping lines have suspended cargo bookings between the Indian subcontinent, including Bangladesh, and the Gulf. For Bangladesh, the consequences could be painful.
The country imports almost all its fuel -- from crude oil to refined petroleum and liquefied natural gas (LNG). A spike in oil prices would immediately inflate the country’s energy import bill.
“Long queues have already appeared at fuel stations across the country as panic buying spreads, while the government has closed universities and introduced fuel rationing to cushion the fallout,” the report states.
Higher fuel prices would also increase costs for electricity generation, transportation, and industrial production. The government, already struggling to manage energy subsidies, would face difficult choices: absorb the cost through larger subsidies or pass it on to consumers through higher fuel and power prices.
Both carry economic consequences, such as rising subsidies straining public finances, while higher domestic energy prices push up living costs and production expenses.
Bangladesh has been struggling with stubbornly high inflation and any further rise in global oil prices would amplify these pressures by raising transport and logistics costs across supply chains. Higher fuel costs affect everything from agricultural irrigation to the distribution of essential commodities, potentially pushing food inflation higher and squeezing household purchasing power.
Energy imports are one of Bangladesh’s largest sources of foreign currency outflows. A prolonged rise in oil prices would add pressure on the country’s foreign exchange reserves.
As demand for dollars rises, the Bangladeshi taka may face renewed depreciation, further raising the domestic price of imported goods and reinforcing inflation.
Bangladesh’s large migrant workforce in the Middle East is another vulnerability. Since fiscal year 2025, around 86 lakh Bangladeshi workers have gone abroad for jobs, with Saudi Arabia employing nearly half. If the conflict escalates, economic activity in the Gulf could slow, threatening employment for migrant workers and reducing remittance inflows.
Even a moderate slowdown would put additional pressure on Bangladesh’s external balance, as remittances play a crucial role in offsetting the country’s large import bill, the report added.