Even so, if the war prolongs triggering further volatility in oil price, that would be bad news for the developing countries like Bangladesh. Such economies, almost entirely dependent on imported oil and liquefied natural gas, can ill-afford to buy energy from the global market at exorbitantly high prices. Bangladesh, for instance, is already in a tight corner due to the ongoing foreign-exchange crunch which has been increasingly weakening its capacity to buy required quantities of oil and liquefied natural gas (LNG) from the international market.
The situation has arisen mainly due to a sharp fall in remittance from the overseas migrant workers. It has been due to the increased transfer of foreign remittance through informal channels taking advantage of the controlled US$ price as dictated by Bangladesh's central bank vis-à-vis that offered by the informal market. As expected, it is negatively impacting the country's foreign exchange reserve which has recently dropped below US$21 billion. The fast depleting forex reserve is a warning signal for the country's economy, which is already reeling from high consumer price inflation.
Against this backdrop, the country is caught between a rock and a hard place as by any means it will have to procure energy from the international market whatever the price. Bangladesh's yearly demand for oil as per FY 2021-22's record is around 7.0 million metric tonnes. This is according to the latest statistics of the Bangladesh Petroleum Corporation (BPC), the government agency that imports, distributes and markets oil and petroleum products in the country. Notably, the entire demand is met through import. Annually, the import costs the national exchequer from US$4.0 billion to 4.5 billion. Bangladesh in the past years has been spending between US$ 5.0 billion and US$7.0 billion for fuel import. The projection is that the amount to be spent for energy import may about double in the current financial year. If the growing instability in the international energy market is taken into consideration, the expenditure on energy may increase further. Consider that apart from oil, Bangladesh has also to import Liquefied Natural Gas (LNG) mainly from Qatar and Oman on a long-term contract. In the short term, the item is procured from the international spot market. Every year between 4.0 and 5.0 million metric tonnes of LNG are imported by the country. What is of concern is that international LNG market is already volatile. If the war situation in the Middle East worsens, the LNG price, which is now hovering at around US$ 14 per million British thermal unit (MMBTU) may shoot up to US$20 to the utter distress of a cash-strapped country like Bangladesh.
In case of a further price hike of fuel price, it will be the last on the camel's back. So, by all means, any situation that befell Sri Lanka in March 2022, when that country's forex reserve declined to US$ 1.94 billion turning the country bankrupt, should be averted. Who is going to sell oil to a bankrupt country on credit?
The government need to pursue a prudent policy to encourage overseas workers to send their remittance through formal channel. If required, the price of US$ in taka, may be left to the forex market to dictate. Because, the remittance dollars must flow in through the formal channel to maintain the country's forex reserves at a comfortable level so that the government can procure energy to keep economy's wheel turning.
sfalim.ds@gmail.com