Following in the footsteps of unsettled energy markets due to the continuation of the Russo-Ukraine war, comes the Hamas-Israeli conflict which has thrown international energy prices in disarray. According to media reports, crude oil has risen by about 7.0 per cent per barrel. This is concerning because of the impact costlier fuel will have on our precarious foreign exchange reserve. This has had a domino effect on other energy commodities such as liquefied natural gas (LNG). Although the government claims to have a reserve of around $20 billion mark, the IMF has stated that Bangladesh currently has around $17 billion. If there is a prolonged war in the Middle East, prices of all major fossil fuels will increase and that will compound Bangladesh's problems.
Presently, more than 50 per cent of energy is imported to the country. This entails significant import of fuel oil, gas and coal. The national exchequer is reportedly spending anywhere between $5.0 to $7.0 billion for energy imports, and this figure is forecasted to increase to $9.0 to $10 given the increase in energy prices in the international market. Experts are of the view that prices could increase anywhere between 10 to 30 per cent. That spells disaster for countries like Bangladesh which are in doldrums already due to fast depletion of their foreign exchange reserve.
Any long-term conflict between Israel and Hamas will inevitably draw in other regional players. According to a report published in Oilprice.com, Brent crude is hovering around $90. In the past week, there has been a $5.0 increase per barrel and Trade Economics website is predicting an increase up to $98 billion by December. Bangladesh imports approximately 7.0 million tons of fuel oil per annum. These include diesel, kerosene, octane, furnace oil and marine fuel - used for power generation, transportation, industry and agriculture sectors. According to data, the price of these imports currently stands at $4.5 billion.
Bangladesh imports fuel from Saudi Aramco and Abu Dhabi National Oil Company Limited (ADNOC) under long-term contracts, which amount to about 1.5 million tons per year. If there is a chance that Iran ends up getting drawn into the conflict, this will inevitably bring in sanctions and that country's oil output will be reduced. So, if the ante gets hotter in the Middle East, there will be an adverse effect on fuel production and supply which will inevitably raise prices. For Bangladesh, the situation is compounded by the fact that these imports are dependent on loans from foreign sources, in particular, Saudi-based International Islamic Trade Finance Corporation (ITFC) which has lent the country $1.4 billion for fuel import. Like oil, LNG price has been on the rise. The media reports say that the spot market price at present is around $14 per million British thermal units (MMBTU), which may go as high as $20 per MMBTU by December.
The import-dependent energy policy risks bleeding the country white as foreign exchange reserves are being depleted at the rate of $1.0 billion a month. When one takes into account that the country has to make repayments on foreign loans for infrastructure development, the situation looks increasingly tenuous. When will we, as a nation, stop this madness and focus on exploring energy from domestic sources?
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