Gulam Rabbani Chowdhury

Rising energy prices and global instability threaten growth; urgent policy action needed

The recent conflict between Iran, Israel, and allied forces has sent shockwaves across the global economy, disrupting energy markets, inflating costs, and straining international trade. What began as a regional confrontation has quickly escalated into a crisis with wide-reaching economic consequences, affecting markets, growth forecasts, and vulnerable economies around the world.

Global Economic Impact: Energy, Inflation, and Trade

The sharp rise in global oil prices lies at the heart of the disruption. With vital energy infrastructure threatened and shipments through the Strait of Hormuz a route for nearly 20% of the world’s seaborne oil at risk, prices have surged above $100 per barrel, levels not seen since the post-pandemic period.

Higher energy costs are cascading through global markets, increasing transportation, manufacturing, and agricultural input prices. Inflation is rising while economic growth prospects are weakening in major economies from the US and EU to China and Asia. Financial markets are volatile, reflecting uncertainty and risk.

Shipping and logistics disruptions have further increased freight costs and delayed deliveries. Developing countries, including Bangladesh, are particularly affected, as imported fuel and essential goods form a significant portion of consumption.

Challenges for Bangladesh and Other Vulnerable Economies

Least developed countries face multiple pressures:
Inflationary shocks from rising fuel and food prices reduce household purchasing power and increase poverty.
Higher import bills for energy and intermediate goods can widen current account deficits and pressure foreign reserves.
Investment and remittance risks, as global uncertainty may tighten financial flows and reduce investor confidence.

Prolonged instability in the Middle East threatens to dampen global growth, increase inflation, and disrupt trade trends that disproportionately burden countries like Bangladesh.

Policy Recommendations for Bangladesh

To navigate these challenges, Bangladesh must act on both short-term and long-term fronts:
1. Strengthen Economic Resilience
Build strategic fuel and food reserves, diversify import sources, and expand social safety nets to protect vulnerable populations from price shocks.
2. Enhance Export and Foreign Exchange Buffers
Boost export competitiveness in garments, pharmaceuticals, and agro-products, while reducing bottlenecks and improving market access to secure foreign exchange inflows.
3. Coordinate Monetary and Fiscal Policies
The central bank and government must work together to ensure macroeconomic stability, balancing inflation control with growth objectives, carefully monitoring exchange rates, reserves, and targeted fiscal measures.
4. Diversify Energy Sources
Reduce reliance on imported oil and gas by investing in renewable energy, energy efficiency, and regional energy cooperation, lowering vulnerability to global price shocks.
5. Strengthen Regional and Global Cooperation
Engage with international financial institutions, neighboring governments, and regional trade blocs to secure development financing, ensure smooth trade flows, and leverage economic diplomacy to mitigate risks.

The Iran Israel conflict is not merely a distant geopolitical event; its economic ripples are being felt from New York’s fuel prices to Dhaka’s import bills. For countries like Bangladesh, the challenge is twofold: manage immediate economic shocks while building long-term resilience against global instability.

Through comprehensive policy planning, diversification, and international cooperation, Bangladesh can protect its economic gains, sustain industrial growth, and continue on a path toward a resilient and sustainable economy.