Middle East Conflict Threatens Bangladesh Energy, Exports: PRI

Escalating tensions in the Middle East could create significant economic shocks for Bangladesh by raising global energy prices, increasing import costs, and weakening export competitiveness, according to a new report published on Sunday by the Policy Research Institute (PRI).

The report, titled Bangladesh Monthly Macroeconomic Insights (January-February 2026), said geopolitical instability in the Middle East particularly the risk of disruptions in global oil supply, poses immediate and medium-term threats to Bangladesh’s fragile economic recovery.

PRI said Bangladesh is highly exposed to global energy price volatility because it relies heavily on imported fuel to meet domestic demand.

The country’s total energy import bill already stands at about $12 billion annually, it said.

According to the report, even a moderate increase in oil prices could sharply raise Bangladesh’s import expenses.

A $10 per barrel increase in oil prices could raise Bangladesh’s energy import costs by about $900 million, while a $20 increase could push the bill up by nearly $1.8 billion,  the report said.

Following the escalation of tensions, Brent crude prices rose to around $92 per barrel, about 42% higher than the pre-war level of $65, while liquefied natural gas (LNG) prices in Europe have surged nearly 70%, according to PRI’s analysis.

Higher oil prices would increase Bangladesh’s demand for US dollars to pay energy import bills, putting pressure on the exchange rate and potentially reducing foreign exchange reserves.

The report also highlightsedthe strategic importance of the Strait of Hormuz, through which roughly 20% of global oil trade passes.

Any disruption to this route due to the Iran-US conflict could trigger a severe supply shock in global energy markets, it added.

In an extreme scenario, global oil prices could rise to $130 per barrel or more, which would significantly increase production and transportation costs worldwide, PRI warned.

Such disruptions could also force Bangladesh to impose energy rationing for industries, potentially affecting industrial output and economic growth.

The report said the conflict could weaken global economic growth and demand for exports which would hurt Bangladesh’s export-oriented sectors, particularly ready-made garments.

According to PRI, geopolitical tensions tend to increase financial market volatility and slow global growth.

A 20–30% increase in oil prices could reduce global economic growth by up to one percentage point, which would negatively affect export demand from major markets.

Bangladesh’s exports are already under pressure, with earnings falling 3.15% year-on-year to $31.9 billion during July-February of FY26, reflecting weak global demand and intensified competition in key markets.

The PRI report says the potential energy shock comes at a time when Bangladesh’s external sector remains fragile.

Although foreign exchange reserves have improved to about $30.4 billion, the country faces rising external debt obligations and slower export growth, which could strain the balance of payments if import costs increase sharply.

Bangladesh’s total external debt rose from $104 billion in FY2024 to $113 billion in FY2025 and is projected to reach around $121 billion by FY2026, increasing future repayment pressures in foreign currency.

The report notes that Bangladesh’s economy is already experiencing a slowdown, with GDP growth falling to 3.49% in FY2025, while inflation remains relatively high at 8.58% in January 2026.

Given these conditions, PRI warned that a prolonged Iran-US conflict could further complicate Bangladesh’s macroeconomic stability by raising inflation, widening the trade deficit and weakening investment confidence.

The institute stressed the need for export diversification, prudent macroeconomic management, and stronger policy reforms to enhance resilience against global shocks, reports UNB.