Industrialization, growth in cultivation, the falling groundwater level required for irrigation, and increasing pressure on mobility and transportation have all caused Bangladesh’s energy demand to multiply in recent years.
The annual growth in this demand is now around 12%. Demand for diesel, furnace oil, lubricants, aviation fuel, petrol, and octane has increased. In addition, demand for LPG and LNG has also grown significantly.
Local energy mix
Bangladesh spends nearly $10 billion on energy imports including coal, which accounts for about 15-17% of total import expenditure. Of this, nearly $7bn is spent on importing liquid fuels alone.
We import about 62% of our total energy demand. Since the refining capacity of the Eastern Refinery is limited, most of the liquid fuel we import is already refined. The majority of these imports come from oil-rich Middle Eastern countries such as Saudi Arabia, the United Arab Emirates, and Kuwait. LNG and LPG are mostly imported from Oman and Qatar.
In recent years, Bangladesh has also imported fuel -- especially diesel and furnace oil -- from Malaysia, Singapore, the Philippines, Egypt, Indonesia, India, and China. Companies such as Saudi Aramco, ADNOC Abu Dhabi, Kuwait Petroleum, Petronas Malaysia, and ExxonMobil Singapore are familiar names to us.
Recently, in addition to Qatari gas, Bangladesh has started importing LNG from the United States, and there are plans to increase such imports. During the previous BNP government, Bangladesh had to import emergency diesel from India in times of crisis. Fuel has also been imported from Egypt and the Philippines.
Unlike many other countries, Bangladesh does not have the practice to operate in the oil futures market. As a result, we cannot take advantage of lower global fuel prices. Most oil imports in Bangladesh are financed by the Islamic Development Bank, few international banks, and the government treasury. Because of this structure, Bangladesh has sometimes been able to import oil at $30-40 per barrel, but at other times has had to import it at $140 per barrel. The markets for LNG and LPG are even more volatile.
The Middle East issue
Over the past few days, following the joint attack by the United States and Israel on Iran, international oil prices have risen sharply. According to a Reuters report, oil prices have increased by more than 25% since the start of the conflict.
The price of WTI crude oil in the United States has risen to about $90 per barrel, while Brent crude has climbed to $92 per barrel. Last Sunday, it even exceeded $110 per barrel. There are fears that if the war continues, prices may exceed $150 per barrel.
The conflict could force consumers and businesses worldwide to face high energy prices for weeks or even months, even if the conflict ends quickly. This is because oil fields and refineries in countries such as Iran, Qatar, and Saudi Arabia have already been attacked, disrupting supply chains and logistics. Increased risks to shipping routes could also prolong higher fuel prices.
This conflict in the Middle East -- an area crucial for global energy supply and shipping routes -- could severely disrupt the world economy, potentially weakening global GDP growth.
Higher energy prices would increase costs for everyone. Shortages of goods could occur, and factories might fail to supply products on time, creating a chain reaction of negative economic effects.
In a research note, analysts from JPMorgan Chase stated that the market is now facing not only geopolitical risks but also operational and supply chain disruptions. Refinery shutdowns and export restrictions are already affecting oil processing and regional supply flows.
Because of the conflict, nearly one-fifth of the world’s crude oil and natural gas supply has been temporarily disrupted. This is partly because Iran has been targeting ships in the Strait of Hormuz, a crucial waterway located between Iran and Oman, and launching attacks on energy infrastructure across the region.
Although Iran recently announced that ships could still pass through the Strait of Hormuz, vessels associated with the United States and Israel remain potential targets, meaning risks persist along this route.
As shipping through the Strait of Hormuz has been severely disrupted, major oil producers in the region -- Saudi Arabia, the UAE, Iraq, and Kuwait -- have had to suspend some oil shipments. As a result, around 140 million barrels of oil supply to global refineries has been disrupted, equivalent to about 1.4 days of global demand.
If shipping disruptions cause many Middle Eastern oil fields to shut down, it may take considerable time for them to return to normal operations.
This sharp increase in oil prices could deal a major shock to the global economy. Higher oil prices increase not only transportation costs but also the cost of industrial production, food, and imported goods. In addition, energy shortages and supply disruptions may negatively affect industrial production and economic growth across Asia.
What can Bangladesh do?
Now let us turn to Bangladesh. As mentioned earlier, around 70% of Bangladesh’s fuel imports come from the Middle East, although imports have recently diversified somewhat to countries like Malaysia, Singapore, China, and India.
Given Bangladesh’s current energy reserves and pipeline arrangements, the country must urgently explore alternative sources for oil imports from India, China, Malaysia, and Indonesia. For LNG, Bangladesh may need to rely more on the United States and even Vietnam.
The government has already requested 50,000 tons of diesel from India, which is a positive step. The Ministry of Energy, Ministry of Foreign Affairs, and Ministry of Finance, along with international commodity suppliers such as Cargill, should work together to ensure smoother energy imports.
In Bangladesh, three state-owned banks, two foreign banks, and two local banks currently open letters of credit (LCs) and provide financing for fuel imports for BPC and Petrobangla. If these banks fail to secure sufficient foreign currency liquidity on their own, they may have to seek support from the central bank.
If necessary, coal-fired power plants should be used to support the energy supply. In the medium term, however, Bangladesh has no alternative but to develop alternative energy sources along with strategic moves toward supply chain improvement.
Mamun Rashid is an economic analyst with extensive experience in energy import and financing in the state sector.
