Iran War Strains Bangladesh Economy: Fuel, Food Costs Soar

While the country is geographically distant from the conflict, its highly connected economy is feeling the impact quickly, as per The Daily Star report.

The main channel of this disruption is the Strait of Hormuz, through which about one-fifth of the world's oil and LNG normally move.

Any interruption in this route affects energy supplies, shipping, and fertiliser, which are essential for agriculture.

Global markets are already responding, with oil prices rising above $100 per barrel, LNG cargoes delayed, and freight costs increasing. Fertiliser prices are also rising, posing a risk to food production.

For Bangladesh, these shocks are arriving together. Higher energy costs are driving up electricity and transport prices, while rising fertiliser costs will increase agricultural expenses, the report said.

Freight increases push up import costs. The real problem is not just higher prices, but the availability of these essential goods.

Shortages in fuel, fertiliser, or shipping can disrupt the economy even more than price increases alone, as per the report.

The first pressure point is the balance of payments. Import costs are rising, while export earnings and remittances could be affected if Gulf labour markets weaken.

The government is also under fiscal strain. Attempts to limit the pass-through of higher global fuel prices mean subsidies are absorbing part of the external shock.

Meanwhile, weak tax collection leaves little room for additional support, the report stated.

Rising energy and fertiliser costs are expected to feed into higher transport and food prices, creating classic cost-push inflation.

Monetary policy alone cannot fully control this, leaving the government to balance inflation risks against slower growth.

The financial sector may also be affected, as weak bank balance sheets could worsen if economic activity slows, the report said.

- IANS