Originally posted in The Daily Star on 31 March 2026
Bangladesh faces a fuel crisis worsened by global tensions, supply disruptions, and panic buying, even after rationing was lifted ahead of Eid. Long queues at the filling stations persist, indicating uneven deliveries and fears of shortages. The distribution system is being strained, exposing vulnerabilities in the country’s energy supply chain that struggle to respond quickly to shocks.
The government should view this situation as a challenge to energy security, the balance of payments, and inflation control, rather than just a concern about fuel procurement. This shock comes at a time of high inflation, a contractionary monetary policy and insufficient foreign exchange reserves. In February 2026, headline inflation reached 9.13 percent, and the Bangladesh Bank kept the policy rate steady at 10 percent amid ongoing inflation risks. Reserves were $29.39 billion (BPM6 method) as of March 25, 2026. Meanwhile, Bangladesh’s tax-to-GDP ratio was only 6.8 percent in FY2025, limiting fiscal space for widespread subsidies.
In terms of energy supply, the primary objective should be to secure essential volumes early before the spot market prices rise further. Bangladesh should swiftly divide its energy import plan into three phases amid high LNG procurement costs—first, immediate short-term cargoes to keep up power supply and industry operations for the next one to three months; second, medium-term contracted supplies for use in the six to twelve months ahead; and third, a contingency reserve for emergency replacements if disruptions worsen.
The import strategy should therefore shift away from over-reliance on opportunistic spot buying and towards a portfolio approach. For crude oil, refined products, and LNG, Petrobangla and Bangladesh Petroleum Corporation (BPC) should maintain a diversified supplier matrix with explicit caps on single-source exposure, while allowing private and state entities to source from multiple countries whenever freight and delivery windows are feasible. For LNG in particular, Bangladesh already has a World Bank-backed financing facility to support new imports from this year. Once operationalised, it is expected to provide $350 million in annual commercial financing.
Simultaneously, the government should reduce demand in areas which generate the lowest economic benefits. Safeguarding gas and electricity supplies for export industries, food production, fertiliser, irrigation, and urban passenger transport should be prioritised, while non-essential public spending needs to be cut back. There should also be a clear, temporary energy-rationing system that includes reduced hours for non-essential public buildings, setting lower fuel-use targets for government fleets, halting decorative lighting, and establishing a merit-order in gas distribution that favours sectors with the highest foreign-exchange earnings and critical food-security roles. It is logical because, with domestic gas output declining and LNG reliance increasing, attempting to supply all sectors equally during a shock is inefficient and costly.
Meanwhile, the Bangladesh Bank should manage foreign currency carefully. It must preserve reserves for key imports and allow the exchange rate to adjust gradually, avoiding aggressive dollar sales to support taka. This approach aims to reduce volatility rather than artificially fix rates. The government should ensure external stability through flexible exchange rates, targeted support, formula-based fuel pricing, and tight monetary policy, given the inflation risk. The central bank must continue buying dollars when market conditions allow to rebuild reserves and prioritise reserve adequacy, cutting non-essential imports, and allocating foreign exchange mainly to fuel, fertiliser, food, medicine, and export-related raw materials.
Despite the challenges posed by high interest rates, this is not the right time to cut policy rates. Lowering rates amid rising fuel prices risks converting temporary external inflation into persistent domestic inflation by boosting demand, devaluing the taka, and increasing import needs. For Bangladesh, with high inflation, fragile expectations, and reliance on energy and industrial imports, cutting policy rates could strengthen dollar holdings and weaken the taka. Another reason to avoid cutting rates is the risk of second-round effects. Rising fuel prices increase freight, electricity, irrigation, and fertiliser costs. When these costs spill over into food and services, reversing inflation becomes more difficult. If monetary policy is loosened simultaneously, wage demands, pricing behaviour, and credit growth can all reinforce inflationary persistence. In this context, maintaining steady or tight rates is not about restricting growth; it is about preventing a stagflationary cycle.
Therefore, a tight monetary approach alone will not solve the issue. The government should combine it with targeted fiscal measures rather than broadly controlling fuel prices. Widespread fuel subsidy could risk crowding out development projects, increasing domestic borrowing, and making inflation harder to manage. A more effective strategy is a targeted support package for low-income households, small farmers reliant on irrigation, public transportation, and potentially export-oriented SMEs, with clear eligibility criteria and sunset clauses. This approach will maintain social objectives while minimising fiscal losses.
For households, the most effective immediate measure would be to offer income protection to the most vulnerable by reallocating existing budget priorities and, where possible, partly through external aid. Regarding transportation, buses and freight services linked to essential goods should be supported. In agriculture, the focus should be on diesel support for irrigation throughout the crop cycle and ensuring a reliable fertiliser supply, as food inflation becomes much harder to control once production costs increase. With international fertiliser and fuel costs raising irrigation and logistics expenses, the government should safeguard the farm input supply chain, even if that means higher prices elsewhere.
The fuel-pricing system should stay formula-based, but include a stabilisation component. Bangladesh implemented an automatic fuel pricing mechanism in February 2024, which should be maintained and refined. Instead of fully passing on international price spikes at once, the scheme should gradually incorporate price changes over time. During sharp global price increases, only part of the rise can be passed through immediately, with the rest phased in over multiple review periods. When prices drop, the formula should save some benefits to rebuild a stabilisation fund or settle arrears. This approach is better than ad hoc price controls because it maintains incentives, enhances transparency, and prevents sudden fiscal shocks.
The medium-term solution involves structural reduction of dependence on imports. Bangladesh cannot remain overly vulnerable to external fuel shocks. This requires speeding up domestic gas exploration where feasible, improving grid efficiency, decreasing system losses, expanding renewable energy options that reduce reliance on imported fuels, and being more selective about new LNG infrastructure investments. The current crisis demonstrates that energy security involves more than just securing contracts. It includes diversification, storage, financing, pricing discipline, and macroeconomic coordination.
The optimal approach now is to secure vital imports early, diversify sources, conserve foreign exchange for key needs, maintain a tight monetary policy to control inflation, avoid blanket subsidies, and leverage the crisis to develop a more resilient energy system.
Dr Fahmida Khatun is an economist and executive director at the Centre for Policy Dialogue (CPD). Views expressed in this article are the author’s own. Views expressed in this article are the author’s own.
