Bangladesh's growth story caught in the oil crossfire

“Energy is the lifeline of modern society. Without energy, economic systems collapse and development comes to a halt,”—Daniel Yergin.
The essence of energy permeates every facet of economics and societal life worldwide. Countries require reliable, cost-effective energy sources to drive their economies forward and meet basic necessities. However, when geopolitics enters the equation, all this stability comes crashing down, with consequences for those economies at risk. Bangladesh is a case in point. The economy of Bangladesh has achieved significant progress in a short span of time, despite its extreme vulnerability due to reliance on oil imports. Consequently, it is highly vulnerable to external disturbances, underscoring the urgent need to diversify its energy sources.
CONTEXT OF AN INCREASING PROBLEM: In the past few years, Bangladesh has become recognised as a development success story. It has experienced continuous economic growth, thriving exports largely driven by the booming ready-made garment industry, and improving human development indicators. Unfortunately, despite all this prosperity, Bangladesh remains highly vulnerable. Its stability depends heavily on the political situation in the Persian Gulf region, which is known for instability.
THE PROBLEM OF IMPORTED ENERGY: Central to this issue is the large share of energy sources that must be imported into Bangladesh. Oil from countries such as Saudi Arabia, the UAE, and Kuwait is a major source of Bangladesh’s energy. Bangladesh becomes vulnerable because the situation in these countries can become unstable at any moment.
Any conflict or disruption may cause fluctuations in global oil prices, and because Bangladesh lacks large oil deposits, such events will lead to higher energy import costs and, consequently, larger foreign debts.
LESSONS FROM THE PAST: This is not a new challenge for Bangladesh. The country has repeatedly faced the consequences of global energy shocks. However, it can be argued that the 1973 oil shock hit the economy at one of its weakest moments, driving up inflation and rapidly depleting its already scarce foreign exchange reserves. A similar pattern reappeared during the Gulf War and continued through the energy price surges of the 2000s and the post-pandemic period, as external shocks once again translated quickly into domestic economic strain.
Even so, Bangladesh has shown a strong capacity to endure. In fact, there have been improvements in upgrading the energy sector, greater reliance on natural gas, and the adoption of certain policies and subsidy programs. The contributions of foreign nations and institutions, such as the IMF, have helped address such crises.
However, a significant limitation remains: most of these measures have been reactive rather than transformative. Although it has managed to overcome various shocks before, its dependence on energy imports remains high, leaving its core weakness untouched.
INFLATION AND BUDGET PRESSURES: Higher energy prices affect all levels of the economy. Higher fuel prices increase transportation costs, which in turn raise prices for goods and services. This inflationary pressure affects low- and middle-class families most severely, reducing their buying power and increasing social inequality.
The government faces an equally tough task. Fuel subsidies, as well as energy subsidies, offer temporary relief but come at a huge financial cost. The resources that should have been invested in education and healthcare have been diverted to solve emergencies.
IMPACT ON INDUSTRY AND TRADE: The industries of Bangladesh, especially garment manufacturing, which depend on exports, are extremely sensitive to energy prices. The availability of cheap energy will ensure efficient production while helping the nation maintain its competitiveness in international markets.
Furthermore, an energy crisis will result in power cuts and disruptions, causing inefficiencies and harming Bangladesh’s image as a reliable producer, ultimately forcing international clients to seek alternatives.
EFFECT ON EXCHANGE RATE AND FOREIGN BALANCE: Apart from increasing energy costs, high oil prices put the country’s foreign balance under further pressure, as energy imports become costlier and, consequently, demand for foreign exchange grows, weakening the domestic currency. Even though a weak currency helps exports, it also makes imports expensive.
To address the problem, the central bank usually uses its foreign exchange reserves. This process tends to weaken the country’s financial cushions and diminish its capacity to respond to future shocks.
BROADER DEVELOPMENTAL CHALLENGES: Beyond immediate economic indicators, energy shocks pose bigger risks to Bangladesh’s long-term development goals. The construction of infrastructures is likely to be expensive and could experience delays. Other goals, such as industrial diversification and technological development, would be constrained by financial limitations.
Policy-makers are now faced with challenging decisions. Domestic adjustments to fuel prices will achieve fiscal balance but will create public displeasure. On one hand, subsidies keep the system stable but fail to consider future sustainability. In a time of geopolitical uncertainty, making such decisions is tough.
NEED FOR ENERGY DIVERSIFICATION: The situation is evident: Bangladesh requires diversification of its energy sources. Investments in renewable energy sources, such as solar and wind, offer a promising path forward. Expanding liquefied natural gas infrastructure and strengthening regional energy cooperation particularly with neighbors like India and Nepal can further enhance resilience. At the same time, improving energy efficiency and governance will be crucial in optimizing existing resources.
STRATEGIC DIPLOMACY AND GLOBAL POSITIONING: The question of energy security is not only an economic one; rather, it is also a diplomatic one. Bangladesh needs to consider that the Gulf is not the only option; on the contrary, it should make efforts to build new alliances in other parts of the world.
As geopolitical tensions among the world’s leading players influence the energy market, it will become essential for Bangladesh to adjust and respond strategically to safeguard its economic stability.
CONCLUSION: The prevailing uncertainty in the Gulf region is not merely a challenge but a test of Bangladesh’s economic robustness. Although there is much to applaud about its success story, the future of Bangladesh hinges on how well it will survive an age of constant shocks.
Past experience offers both reassurance and warning. Bangladesh has repeatedly demonstrated its capacity to endure crises, yet the recurring nature of energy shocks highlights the need for bigger structural change. Moving from reactive responses to proactive strategies—centred on diversification, fiscal discipline, and strategic engagement will be essential.
In a world defined by uncertainty, resilience must go beyond recovery; it must encompass anticipation and preparedness. For Bangladesh, the challenge and opportunity lies in transforming energy vulnerability into a foundation for sustainable and independent growth.

Dr. Serajul I. Bhuiyan, Professor and Former Chair Department of Journalism and Mass Communications
Savannah State University
sibhuiyan@yahoo.com