Key points
- Conflict in the Middle East is pushing Bangladesh into another energy crisis, as it relies heavily on imported fossil fuels.
- In response, the government rationed fuel and power, and is turning up coal generation and seeking expensive solutions through the spot market. This has resulted in fertiliser plant shutdowns, increased fiscal pressure on power companies, strained foreign exchange reserves, and increased air pollution.Â
- New ZCA analysis shows that Bangladesh’s annual fossil fuel import bill could rise by USD 4.8 billion, a 40% increase from 2025 levels and 1.1% of GDP, if oil, gas and coal prices remain high.Â
- This type of crisis is repeating itself, echoing the price shocks caused by Russia’s invasion of Ukraine, causing the costs of Bangladesh’s dependence on fossil fuels and its delayed energy transition to mount.Â
- The funds spent absorbing volatile prices are a missed opportunity for Bangladesh to finance renewable energy, which would insulate the country from future crises.
High reliance on fossil fuels imported from the Middle East is driving an energy crisis in Bangladesh
Bangladesh’s energy supply relies heavily on imports. 46% of the country’s total energy supply came from imports in 2023, and imports accounted for 65% of its power needs in 2024-2025.1IEEFA data for the fiscal year 2024-2025 includes imported fuels used in electricity generation in addition to imported electricity.
Much of this fuel flows through the Strait of Hormuz. According to Reuters, Bangladesh imports around 1.4 million tonnes of crude oil through the Strait annually under long-term contracts with Saudi Aramco and Abu Dhabi National Oil Company (ADNOC).
The Iran conflict is now severely disrupting shipping through the Strait, and reports say an Aramco cargo of 100,000 tonnes bound for Bangladesh is already delayed in the Gulf because of the war.
Supply pressures are also emerging for Bangladeshi diesel imports. Around 60,000 tonnes of the 293,000 tonnes of diesel planned for import in March have been deferred or cancelled, according to the Bangladesh Petroleum Corporation at the start of March, tightening domestic supply.
Risks extend beyond oil. 75% of Bangladesh’s LNG imports come from Qatar, which suspended production and shipments following the outbreak of the war – including to Bangladesh. Six out of seven LNG cargoes scheduled for April in Petrobangla’s import plan are expected to pass through the Strait, with the delivery of half the remaining cargoes uncertain, according to reports.
According to Ember, 66% of the country’s electricity came from gas in 2024, and the IEA reports that nearly two-thirds of the country’s LNG supplies passed through the Strait of Hormuz in 2025.Â
Deep LNG dependence in electricity generation and escalating LNG prices are driving fiscal distress in the power sector, with Bangladesh Independent Power Producers’ Association (Bippa) President David Hasanat saying that 23% of Bangladesh’s power plants are inoperable due to gas shortages.
Facing looming shortages, the government has imposed power cuts, the temporary closure of universities, and initially introduced fuel rationing for vehicles.2According to reports, fuel rationing was lifted on 15 March 2026. Â The Bangladesh Power Development Board reports that measures have been taken to increase coal burning, which will deepen the air pollution crisis that is already killing hundreds of thousands of Bangladeshis annually.Â
The government is seeking opportunities to resolve the unfolding energy crisis, including working with Iran to allow Bangladesh-bound shipments through the Strait,3As of 16th March 20216, no oil has passed through the Strait despite the agreement. or considering offers from Saudi Aramco to pay USD 400,000 for 100,000 tonnes of crude oil via alternate delivery methods. But ending the country’s long-term exposure to repeated, expensive energy shocks will require a rapid pivot away from dependence on fossil fuel imports.
Fossil fuel price shock could push Bangladesh’s import bill up by 40%, according to ZCA analysis
As brakes on production and shipment delays place strong upward pressure on spot market prices, State-run Petrobangla is turning to the spot market to meet demand. Bangladesh has already purchased two LNG cargoes on the spot market in March at more than double the January 2026 rate.
The government is currently supplying 9,000 tonnes of diesel daily, short of the country’s 12,000-tonne demand, and incoming shipments are sufficient for only 16 days at this rationed supply. In response, the country has reportedly moved to import 300,000 tonnes of diesel through direct procurement outside of long-term contracts, despite the higher price tag, further straining the already high energy import bill.Â
Our analysis shows that if oil, gas and coal prices remain at the current elevated levels for a year,4This calculation was based on: Brent oil prices averaging USD 100 per barrel for the next year, up from USD 69.14 in 2025; JKM LNG spot prices remaining at USD 16.20 MMBtu for the next year, from USD 11.99 in 2025; and coal prices remaining at USD 137 per tonne for the next year, from USD 104 in 2025. We assume that import volumes remain constant (i.e., there is no demand destruction from higher prices). This implies 12.7 million tonnes of coal imports, 7.29 million tonnes of LNG imports, and 98.7 million barrels of oil equivalent imports. Bangladesh’s annual fossil fuel import bill could rise by USD 4.8 billion, a 40% increase from 2025 levels and equivalent to 1.1% of the country’s 2024 GDP.
The hefty price tag on fossil fuel imports is expected to significantly drain Bangladesh’s foreign exchange reserves
Ahead of the crisis, Bangladesh’s import cover ratio – the number of months of imported goods and services it could pay for using only its current foreign exchange reserves – was 5.7. Our analysis shows that this will fall to 4.9 months if current oil, gas and coal prices hold for a year.5Pre-crisis import cover ratio was calculated by dividing Bangladesh’s foreign exchange reserves (USD 35.1 billion) by the average monthly cost of the country’s total imports (USD 6.1 billion). Post-crisis import cover ratio was calculated by adding the additional fossil fuel import costs (USD 4.8 billion per year) to the average monthly import bill.
The increased import bill will also weigh on the country’s currency, which could push up inflation and apply greater pressure on the central bank to raise borrowing costs.
Disruptions to fossil fuel energy supplies are already affecting domestic fertiliser and garment industries in Bangladesh
As predicted by the IEA, inadequate LNG supplies are already leading to production curtailments in gas-intensive industries. Bangladesh has reportedly shut down four of its five fertiliser factories at the start of March to conserve dwindling gas supplies. These shutdowns may force farmers to import fertiliser at significantly higher prices.Â
The garment industry is also being affected. The President of the Bangladesh Garment Manufacturers and Exporters Association, Mahmud Hasan Khan, reported that power cuts have increased to up to five hours a day since the war began, and diesel supplies are insufficient to run back-up generators.
Bangladesh has been here before – Russia’s invasion of Ukraine resulted in a similar energy crisis
The Russia-Ukraine conflict and resulting hikes in energy, food, and transport prices sent Bangladesh into an economic crisis, with GDP levels only finally recovering in 2025. Asian LNG prices rose by 390% in the year leading up to Russia’s invasion, followed by a 48% increase in the five months following it, resulting in power demand shortfalls and months of power cuts. In October 2022, blackouts left 130 million people without power. Manufacturing industries, including the textile and electronic sectors, saw output declines of up to a half.
Despite the crisis caused by fossil fuel dependence, domestic renewable energy capacity in Bangladesh has seen limited growth. IEA data shows that renewables’ share of the energy mix has stagnated around 2% between 2020 and 2023, with little increase in 2024. Just 1446.3 MW of capacity was added between December 2008 and December 2025, according to IEEFA.Â
Meanwhile, the country’s LNG imports increased by an estimated 19% between 2024 and 2025, mostly from spot purchases. There are 41 proposed new LNG power plants in Bangladesh, costing an estimated USD 50 billion. This would add 35 GW of capacity, tripling current capacity, and would be largely reliant on imported LNG.
Compounding crises illustrate the growing cost of delaying Bangladesh’s transition to clean energy
Further investment in expensive and crisis-prone fossil fuel infrastructure will lock Bangladesh into high-cost, long-lived assets and cyclical energy emergencies, tying up capital that could otherwise support the energy transition.
Reducing Bangladesh’s dependence on imported fossil fuels through renewable energy investment will mitigate the impact of price volatility and help avoid further fiscal and economic strain. Unlike imported fossil fuels, solar and wind energy can reduce hefty import bills, providing stable, low-cost electricity once built, with no fuel input requirement.
Bangladesh needs to deploy 760 MW of renewable energy capacity per year between 2026 and the end of the decade to reach its 2030 goal of 20% renewables in its electricity mix. However, IEEFA reports that only 358 MW of renewable energy projects were in the construction pipeline as of February 2026.Â
In addition to investment, policy options that reduce barriers to deployment will help spur the uptake of renewables and reduce fuel import costs. For example, IEEFA analysis shows that cutting the import duty on solar panels and inverters could help unlock rooftop solar projects. A single 1 MW rooftop plant could save around USD 180,000 in imported fuel costs each year and insulate Bangladesh from a cycle of future fossil fuel price shocks.
