Adverse impacts of energy crisis on commodity prices

The war in the Middle East has entered 2nd month, and there is no end in sight. All sides are claiming that they are winning, but only one outcome that is certain is global economic recession and suffering of ordinary people both in the conflict-affected zones and beyond. While people in Iran are facing widespread death and destruction due to relentless bombing by the USA and Israel, the rest of the world is grappling with rising prices and even shortages of energy and food. Oil prices have surged above $120 a barrel, up from $73 a barrel before the conflict. Some analysts warn that if the Strait of Hormuz, which is already closed for nearly a month, remains blocked for another month or two, oil prices could jump to as high as $150 and even $200 a barrel.

The repercussion of global oil price volatility is weighing heavily on Bangladesh's economy, as the country meets 95 per cent of its energy needs through imports. Bangladesh has not increased domestic fuel prices yet, whereas about 100 countries have increased energy prices since the US and Israel launched attacks on Iran on February 28. The state minister for power, energy and mineral resources recently said the government is providing a daily subsidy of Tk1.67 billion on fuel to ease public hardship and that it does not plan to raise prices now. This decision appears aimed at shielding people from further inflationary pressure, as consumers have already been grappling with high inflation for the past three years.

However, this crucial pro-people move is being undermined by the hoarding and selling of fuel oil in the open market at prices far above official rates. Many are purchasing fuel at exorbitant prices from black market either because filling stations in their vicinities are out of stock or to avoid long queues. As a result, fuel prices have effectively risen sharply despite no official adjustment. At the same time, traders are increasing the prices of other goods - sometimes justifiably, sometimes opportunistically - citing higher fuel costs. Fuel prices are never an isolated economic phenomenon. The unofficial rise in fuel prices is rapidly cascading through the broader economy, intensifying an already difficult economic environment and tightening the squeeze on low- and middle-income households. The most immediate impact was visible in transport fares, particularly during the Eid travel season. The ripple effects do not stop there. Higher transportation costs are feeding into food inflation, pushing up the prices of vegetables, fish, chicken and other essential kitchen items. This comes at a time when general inflation rose to 9.13 per cent in February, up from 8.58 per cent in January. Given the ongoing Middle East conflict, oil price volatility and a rising dollar, inflation could climb even higher in the coming months.

Against this backdrop, with no immediate end in sight to the ongoing war, the urgency of a coordinated response cannot be overstated. A number of countries have declared a national energy emergency and begun adopting energy conservation measures. For instance, the Philippines has officially declared a national energy emergency, while countries such as Pakistan and Egypt have introduced austerity measures, including reduced fuel use, remote work and cuts in energy-intensive activities. Prime Minister Tarique Rahman has recently convened a high-level meeting to confront the fuel crisis and global energy volatility. The government should also immediately sit with leading economists to assess the overall economic situation and devise a pragmatic course of action to shield the people from the full inflationary impact of fuel price volatility and broader economic instability.