The escalating Iran-Israel conflict is heightening economic uncertainty for Bangladesh, prompting economists and analysts to urge immediate preparedness for its potential impacts.

“A sustained escalation in the Middle East could trigger a cascade of challenges, primarily driven by surging global oil prices, disrupted trade routes, and potential impacts on remittance inflows, threatening Bangladesh's economic stability and growth trajectory,” said Dr Selim Raihan, Professor of Economics at the University of Dhaka and Executive Director of the South Asian Network on Economic Modeling (SANEM).

Talking to UNB, Dr Raihan said Bangladesh, as an increasingly export-oriented economy, is heavily reliant on smooth international trade and stable energy prices.

The Ready-Made Garment (RMG) sector, which accounts for over 83 percent of the country's total export earnings, is highly vulnerable to global economic disruptions. Secure trade routes and stability in the US and European markets are essential for sustaining RMG exports, he said.

Dr Raihan also pointed out that Bangladesh’s energy security is deeply linked to imports, particularly those passing through the Strait of Hormuz, a vital global shipping corridor that handles about one-fifth of the world’s oil supply. Any disruption in shipments through this route could severely affect the country's economy.

Meanwhile, Dr Muhammad Fouzul Kabir Khan, energy adviser to the interim government, said the oil supply chain is likely to remain stable, but uncertainty surrounds the supply of liquefied natural gas (LNG).

Global oil prices have already surged in response to rising tensions, with Brent crude and West Texas Intermediate (WTI) both recording sharp increases. Experts warn that a prolonged conflict, especially one that disrupts the Strait of Hormuz, could drive oil prices up to US$90–$120 per barrel.

For a country like Bangladesh, which is heavily dependent on imported fuel, such a scenario could lead to a skyrocketing import bill.

“Countries like Bangladesh, which rely heavily on oil imports, will be among the hardest hit,” said Dr Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue (CPD).

He warned that a spike in oil prices would act as a “barometer of commodity prices in the global market,” triggering inflation across various domestic sectors and placing immense pressure on household budgets.

In addition to energy concerns, the escalating tensions also threaten global trade and supply chains. Ongoing Houthi militant attacks in the Red Sea have already disrupted major shipping routes to Europe, pushing global logistics costs up by over 20 percent.

A prolonged conflict would likely worsen these disruptions, raising the cost of importing essential raw materials and finished goods, while also increasing shipping costs for Bangladesh’s exports. This would erode the competitiveness of the RMG sector, which depends on timely and cost-effective logistics.

Airspace closures across the Middle East have further complicated international aviation routes, raising operational costs for both cargo and passenger movement.

Mahmud Hasan Khan Babu, President of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), told UNB that the garment industry has kept its production running even during energy shortages.

Another blow in the form of price hikes or supply disruptions could be devastating, especially after the challenges faced during the COVID-19 pandemic.

Remittances, a crucial pillar of Bangladesh’s economy and a key source of foreign exchange, also face potential, albeit indirect, risks.

Although recent figures show strong remittance inflows supporting the recovery of foreign exchange reserves, prolonged instability in the Middle East could affect the employment and earnings of millions of Bangladeshi expatriate workers in the region.

Should security conditions deteriorate in host countries, future remittance inflows may decline, placing further pressure on the country’s foreign currency reserves, which are already strained by rising import payments.

According to Bangladesh Bank, gross foreign exchange reserves have recently recovered to over US$25 billion.

These reserves remain vulnerable to external shocks. A sustained rise in import costs, due to higher oil prices and increased shipping expenses, could rapidly deplete reserves, making it difficult to finance essential imports and maintain macroeconomic stability.

Economists urged the government to stay vigilant and proactive by developing contingency strategies.

These include diversifying energy sources, exploring alternative trade routes, and providing targeted support to the RMG sector to cushion the blow of global instability.

The ripple effects of a prolonged Iran-Israel conflict could severely dampen Bangladesh’s economic outlook, potentially slowing GDP growth and heightening inflationary pressure on its population, they said.