Economy
How Iran-Israel war may cost Bangladesh economy
In recent months, Bangladesh’s economy has shown signs of recovery, particularly in export earnings and inward remittances. The volatility in the foreign exchange market has also begun to ease after over a year and a half. However, the Iran-Israel conflict has emerged as a fresh concern, posing a potential threat to the nation’s ongoing recovery efforts.
Businesses and economists have expressed concerns that if the conflict escalates and prolongs, it could have various repercussions on Bangladesh’s economy.
One such impact could be the destabilisation of the energy market and subsequent price fluctuations, akin to what occurred following the Russia-Ukraine conflict in 2022. This could lead to increased burdens on Bangladesh’s oil and LNG import bills due to inevitable price hikes.
They caution that the Red Sea shipping route, already affected by Yemen’s Houthi attacks, could face additional disruptions. This situation could potentially have significant impacts on global supply chains, especially if there are further complications at the Strait of Hormuz which sees one-fifth of global oil production flow through it daily. This could result in increased freight costs and shipping times.
“Further escalation means everything will be difficult for us and many others,” said Azam J Chowdhury, chairman of East Coast Group, a conglomerate engaged in diverse sectors ranging from oil and gas to ocean-going ships, as well as banking and finance, among others.
Azam said the price of oil has already risen by $1 per barrel, and it is likely to further increase if the conflict between Iran and Israel persists. The state-owned Bangladesh Petroleum Corporation (BPC) has generated approximately Tk4,000 crore in profits since implementing the automated monthly pricing formula. However, these profits might not be sustained if prices further increase. Therefore, the pressure on the balance of payments (BOP) will further intensify.
Dr Masrur Reaz, CEO of the private think-tank Policy Exchange of Bangladesh, said an unstable energy market could lead to price escalations and increase import bills. If the government fails to import energy at higher prices, there may be an increase in load shedding and economic losses.
He said the Red Sea route, already experiencing disruptions with ships rerouting via Africa, would further increase shipping time and costs if trade through the Strait of Hormuz is disrupted. This situation could potentially create a crisis for ships due to the additional time required to navigate through the African region.
While neither Iran nor Israel directly hosts Bangladesh’s migrant workers, the repercussions of the conflict will be felt in other Middle Eastern countries, notably Saudi Arabia and the UAE, where hundreds of thousands of Bangladeshis are employed, Masrur said, noting that the war’s impact on tourism and other service sectors in these countries will inevitably affect the livelihoods of Bangladeshi workers residing there.
“In the short term, expatriate Bangladeshis may not lose their current jobs, but new recruitment will likely be halted. As a result, the inflow of remittances will decrease, putting pressure on the balance of payments,” he said.
Masrur added that if the conflict persists for a year or more, Bangladeshis may indeed begin to lose their jobs.
Professor Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue (CPD), reiterated concerns about the rise in energy prices and maritime trade costs.
He said if the conflict escalates, the global economy would suffer negative consequences. Consequently, demand in the USA and EU markets could decrease, with the obvious impact to be felt on Bangladesh’s garment exports.
However, Md Sazzadul Hassan, chairman and managing director of BASF Bangladesh Limited, cautioned against premature conclusions, stating that the outcome depends on how the tension unfolds.
“In general, the ongoing shipping challenges are likely to worsen, and fuel costs may skyrocket,” he said.
Nonetheless, he said, since a large number of Bangladeshis work in the Middle East, any further escalation could potentially impact these workers.
Oil price after Iran’s missile attack on Israel
Iran possesses extensive oil reserves and ranks as the third-largest producer within the oil cartel OPEC. According to CNBC, an American business news channel, any disruption to its ability to supply global markets could result in elevated oil prices. The potential closure of the Strait of Hormuz could further exacerbate this situation.
CNBC reported on Monday that oil prices could surge to $100 per barrel and beyond if renewed fears of a regional war emerge.
“Any attack on oil production or export facilities in Iran would drive the price of Brent crude oil to $100, and the closure of the Strait of Hormuz would lead to prices in the $120 to $130 range,” reports CNBC quoting Andy Lipow, president of Lipow Oil Associates.
Meanwhile, Reuters reports a 1% decrease in oil prices on Monday, indicating the market’s downplaying of the risk of a broader regional conflict following Iran’s weekend attack on Israel.
Brent futures for June delivery dropped by 99 cents, approximately 1%, reaching $89.46 a barrel by 0933 GMT on Monday. Meanwhile, West Texas Intermediate futures for May delivery experienced a decline of $1.05, around 1.2%, standing at $84.61.
Earlier on 12 April, oil benchmarks had risen in anticipation of Iran’s retaliatory attack, with prices touching their highest since October.
The report indicates that the price of each barrel of Iran’s heavy crude oil in March 2024 reached $83.48, marking a $3.14 increase compared to the previous month.
Furthermore, the average oil price of OPEC in March 2024 reached $84.22, reflecting a $2.99 growth compared to the preceding month, as stated in the report.
Referring to the countrywide recent havoc and atrocities, Prime Minister Sheikh Hasina today said that she had an apprehension there might be a strike like this by the BNP-Jamaat clique to pull down the country’s prosperity.
“. . . they (BNP-Jamaat) had wanted not to hold the elections, but we had arranged the elections. After election they thought it wouldn’t be accepted by all, but we’ve also made it acceptable to all and we’ve formed the government. It was an apprehension to me that there would be a strike like this,” she said.
The Premier made this remarks while exchanging views with editors, senior journalists and head of news of various media outlets, organised by Editors’ Guild at her office (PMO).
She mentioned that before and after the election in 2013-14, the BNP-Jmaat clique unleashed arson attacks and killings that left hundreds of people killed and thousands injured.
“It was little bit understandable that this (the activities and movement of the students) was a grave conspiracy,” she said.
Sheikh Hasina said that she didn’t want any incident which might invite any unwanted situation that will invite instability in the country. “It was the target to destroy country’s economy,” she said.
She questioned about the understanding level of the people who supported these mayhem aiming to cripple the country’s advancement and prosperity.
Sheikh Hasina, also the chief of Awami League, said that vested quarter is highly interested to destroy country’s independence and the continuation of the democracy that is going on for long 15 years.
She again said that she never wanted to deploy army personnel in the field while the students were there for the sake of their security.
“While they (students) declared that they are not involved in the on going subversive activities then we called for army,” she said.
The premiers also said that she also didn’t want to impose curfew as the country is going through a democratic environment for 15 years.
She requested the people to resist those who have done this bane for the country. “They have destroyed all the structures have been built for their welfare and livelihood. They have struck all those structures. Who will be the worst sufferer? Of course, mass people. Now it is the responsibility of the mass people to resist these terrorism and militancy,” she said.
The premier called for creating mass awareness against the militancy that has opened in the destructive activities.”If the people don’t become aware then what could we do or how much we could do alone,” she said.
She also mentioned that the targets of the recent mayhem was Awami League, Freedom Fighters and pro-liberation forces.
The Prime Minister said that when all demands of the quota-free movement students were accepted why they gave scope to the militants for doing such heinous activities.
“One day the quota-free movement activists have to answer to the nation, why they gave such opportunity to them for this destruction to the country,” she said.
PM’s Press Secretary Md Nayeemul Islam Khan moderated the programme, while Editors’ Guild president Mozammel Huq Babu delivered welcome address.
Senior journalist Abed Khan, Bangladesh Pratidin editor Nayeem Nizam, DBC Editor-in-Chief and CEO Monzurul Islam, Bhorer Kagoj Editor and Jatiya Press Club general secretary Shyamol Dutta, Daily Jugantor Editor Saiful Alam, Jatiya Press Club president Farida Yasmin, Dhaka Journal chief editor Syed Istiaque Reza, Head of News Nagorik TV Dip Azad, Amader Somoy Editor Mainul Alam, Bangladesh Journal editor Shajahan Sarder, DBC news editor Zayedul Ahsan Pintu, Ashish Saikat of Independent TV, Bangla Tribune editor Zulfiquer Russell, head of News of 71 TV Shakil Ahmed, Energy and Power Editor Mollah Amzad, Head of News of Kings News Nazmul Huq Saikat and Mamunur Rahman Khan of RTV also spoke.
Britain’s inflation rate held steady in June after returning to the Bank of England’s target the previous month, official data showed Wednesday, confounding expectations for another modest slowdown.
The Consumer Prices Index was unchanged at 2.0 percent in June from the same level in May, the Office for National Statistics said in a statement, compared with market forecasts of 1.9 percent.
“Hotel prices rose strongly, while second-hand car costs fell but by less than this time last year,” said ONS chief executive Grant Fitzner.
“However, these were offset by falling clothing prices, with widespread sales driving down their cost.
“Meanwhile, the cost of both raw materials and goods leaving factories fell on the month, though factory gate prices remain above where they were a year ago.”
Analysts said the data could cause the Bank of England to sit tight for a while longer before starting to cut interest rates.
“The chances of an interest rate cut in August have diminished a bit more,” said Paul Dales, chief UK economist at research consultancy Capital Economics.
Last month, the BoE kept its key interest rate at a 16-year high of 5.25 percent, despite slowing inflation in May.
Britain’s newly elected Labour government welcomed news that inflation remained at the BoE’s target level.
“It is welcome that inflation is at target,” said Darren Jones, Chief Secretary to the Treasury, in a statement.
“But we know that for families across Britain prices remain high… (which) is why this government is taking the tough decisions now to fix the foundations” of the UK economy, he said.
Labour, led by new Prime Minister Keir Starmer, has pledged immediate action to grow the economy after the centre-left party won a landslide general election victory to end 14 years of Conservative rule.
Later on Wednesday, King Charles III will read out Labour’s first programme for government in a decade and a half, when the UK parliament formally reopens following the July 4 election.
Elevated interest rates have worsened a UK cost-of-living squeeze because they increase borrowing repayments, thereby cutting disposable incomes and crimping economic activity.
The BoE began a series of rate hikes in late 2021 to combat inflation, which rose after countries emerged from Covid lockdowns and accelerated after the invasion of Ukraine by key oil and gas producer Russia.
China’s economy grew 4.7 percent year-on-year in the second quarter of 2024, official data showed Monday, less than analysts had expected.
“By quarter, the GDP for the first quarter increased by 5.3 percent year on year and for the second quarter 4.7 percent,” Beijing’s National Bureau of Statistics (NBS) said in a statement.
The figures were much lower than the 5.1 percent predicted by analysts polled by Bloomberg.
Retail sales — a key gauge of consumption — also slowed to just two percent in June, the NBS said, down from 3.7 percent in May.
The world’s second-largest economy is grappling with a real estate debt crisis, weakening consumption, an ageing population and trade tensions with Western rivals.
Top officials are meeting in Beijing on Monday for a key plenum, with all eyes on how they might kickstart lacklustre growth.
