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.
Prime Minister Sheikh Hasina today (25 April) called for speaking out against all forms of aggression and atrocities, and say ‘no’ to wars.
“We must speak out against all forms of aggression and atrocities, and say ‘no’ to wars,” she said adding that Bangladesh supports the UN Secretary General’s ‘New Agenda for Peace.
The prime minister was addressing the 80th Session of the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) held at the ESCAP Hall (2nd floor), United Nations Conference Center (UNCC) here.
She arrived in Bangkok on Wednesday on a six-day official visit to Thailand.
The PM said the pre-condition for sustainable development is lasting peace and security.
“We must settle regional disputes and tension through dialogue. Our mutual respect for national sovereignty and territorial integrity must remain paramount,” she said.
Hasina called upon the Asia-Pacific region, especially ASEAN, to redouble their efforts to end Rohingya crisis as all efforts at regional connectivity, integration, and prosperity will continue to be marked by a missing puzzle without it.
“The origin of their crisis has been in Myanmar, and its solution also lies in Myanmar,” she declared.
“As long as that solution remains out of reach, all our efforts at regional connectivity, integration, and prosperity will continue to be marked by a missing puzzle. Let us redouble our efforts to put that puzzle back in place,” she said.
She said that in August 2017, when thousands of Rohingya men, women, and children from Myanmar fled to Bangladesh, Bangladesh offered them temporary shelter.
“With an ever growing population, this has now become one of the largest humanitarian situations in the world,” she said.
Sheikh Hasina said that In the backdrop of ongoing armed conflicts in Myanmar, the Rohingya repatriation process is also getting delayed.
“This is creating serious security risks within and beyond our territories,” she said.
She called upon the Asia-Pacific region, especially ASEAN, to play a proactive role in resolving the volatile situation in Myanmar.
“We must ensure that the Rohingya can go back home in safety and dignity at the earliest possible,” she said.
The prime minister said that the Asia-Pacific region must stand united against its common enemies of poverty and hunger.
She said Bangladesh has reduced poverty from 41.51 percent to 18.7 percent between 2006 and 2022.
It also reduced extreme poverty from 25.1 to 5.6 percent during the same period.
“We remain confident about eradicating extreme poverty by 2030,” she said.
She mentioned that Bangladesh has made notable progress on food security, with focused interventions on maternal and child nutrition.
“Our current priority is to address inequalities through income distribution, asset ownership, and social protection,” she said.
The prime minister said that Asia-Pacific region must put up a united front in tackling the climate crisis, biodiversity loss, and transboundary pollution.
“We need to push for ambitious climate financing goals beyond 2025 at COP-29. We need to cooperate on cross-border water management and air quality improvement. We must all prepare for growing extreme weather events,” she said.
In this connection, she suggested looking into Bangladesh’s experience in disaster risk reduction.
“We appreciate UN-ESCAP’s support in improving our early warning capabilities,” she added.
Briefly describing various development programmes and achievements of her govebrment, the prime minister said that much of the development gains are affected by climate impacts.
“As a low-lying delta, Bangladesh has no option but to invest heavily in climate resilience,” she said.
She mentioned that Bangladesh is already recognised as a global leader in climate adaptation.
“We are happy to share our traditional and innovative solutions with other vulnerable countries,” she said.
She said that Bangladesh has urged developed and emerging economies in the region to raise their time-bound emission reduction targets.
“For economies in transition, it is important to have a just energy transition.”
In Bangladesh, she said, “we are working on long-term energy security with a sound mix of clean and renewable energy.”
“We shall continue to do our part in pursuing a circular and low-carbon economic growth pathway.”
She underscored the need for increased and easy access to financing and technology from both the public and private sectors.
“I invite UN-ESCAP to help build the capacity of climate-vulnerable countries to mobilise adequate international climate financing.”
PM Hasina said that Bangladesh now provides critical links to the Trans-Asian Highway and Railway networks.
“Our physical and digital infrastructures are being developed to foster regional trade and connectivity.”
She said Bangladesh offers access to the Bay of Bengal for land-locked territories in its neighbourhood.
“We stand ready to work together with all regional partners through mutual understanding and cooperation,” said the prime minister.
Bangladesh and Qatar signed 10 cooperation documents on Tuesday, including five agreements and five MoUs, aimed at strengthening ties and elevating relations to new heights.
Prime Minister Sheikh Hasina and Qatar’s Emir Sheikh Tamim bin Hamad Al Thani witnessed the signing of the documents.
The five agreements cover cooperation in the legal field, promotion and protection of mutual investments, avoidance of double taxation, maritime transport, and the establishment of a Joint Business Council (JBC) between FBCCI & QCCI.
The five MoUs include cooperation in sports and youth, manpower employment (Labour), diplomatic training, education, higher education, scientific research, and between Qatar Ports management Company “MAWANI QATAR” and Chittagong Ports Authority.
Earlier in the morning, PM Hasina warmly welcomed and received Emir Sheikh Tamim at her office.
They had a tête-à-tête meeting at the Prime Minister’s Office, followed by a bilateral meeting.
After signing the visitors’ book, the emir headed for Bangabhaban where the president received him.
A high-level Qatari delegation led by Qatar’s emir is on a state visit to Bangladesh at the invitation of the president and the prime minister.
During the ceremony, a road and a park in Dhaka were named after Emir of Qatar Sheikh Tamim Bin Hamad Al Thani.
The park, constructed in Kalshi area of Mirpur under Dhaka North City Corporation, and the road from Mirpur ECB point to Kalsi Fly Over were named after Emir of Qatar.
Now, the road and park are known as Sheikh Tamim Bin Hamad Al Thani Avenue and Sheikh Tamim Bin Hamad Al Thani Park.
The Federation of Bangladesh Chambers of Commerce and Industries (FBCCI) is urging for greater involvement of marginal, small, and medium enterprises in international trade fairs. This initiative aims to spotlight Bangladesh’s promising products on the global market.
FBCCI President Mahbubul Alam made the call during the first meeting of the organisation’s Standing Committee on National and International Trade Fairs and Foreign Delegations. He emphasised the need to provide marginal, small, and medium enterprises with the space and resources to effectively display their products at these events.
“The participation of marginal, small, and medium enterprises is crucial at both national and international levels,” Mahbubul Alam said. “This will allow us to export Bangladesh’s promising products and open new markets.”
The FBCCI president informed that his organisation is actively discussing and collaborating with the government to make this a reality. He also proposed organising roadshows in neighbouring countries and Europe to revive the country’s handicraft industry and increase export opportunities for these products.
Standing Committee Chairman Nuruzzaman echoed Mahbubul Alam’s sentiments, highlighting Bangladesh’s vast potential and young population. “We need to move beyond the garment sector and focus on product diversification and market creation,” Nuruzzaman said.
Achieving this, he acknowledged, will require close collaboration with the Export Promotion Bureau, Ministry of Foreign Affairs, and Bangladesh Investment Development Authority.
FBCCI Senior Vice President Md Amin Helaly pledged the organisation’s support in facilitating increased exports through participation in foreign trade fairs. He stressed, however, the importance of raising awareness among Bangladeshis about the country’s diverse and promising products.
The meeting concluded with an open discussion where participants expressed keen interest in organising and participating in various sectoral fairs, both domestically and internationally, under the FBCCI’s umbrella.
