Originally posted in The Daily Star on 22 September 2026
Managing Bangladesh’s latest fuel price shock
The government has increased the retail prices of all major fuels by Tk 20 per litre, effective from midnight on September 20. This decision, driven by the international energy situation, comes as ordinary people already face inflationary pressure from high food prices. To note, Bangladesh’s largest recent one-off retail fuel price increased in August 2022, and it was a considerably larger hike than the latest one.
Like most countries, Bangladesh is experiencing a severe energy shock due to higher crude and refined product prices, disrupted shipping routes, rising freight and insurance costs, and pressure on the taka. Since Bangladesh relies heavily on imported petroleum, domestic fuel costs are affected not just by crude oil prices but also by refined product prices, the exchange rate, freight insurance, financing expenses, port and storage charges, and taxes and distribution margins. Even if international oil prices are unchanged, import costs rise if the taka depreciates. As such, if international prices rise and the dollar strengthens, Bangladesh Petroleum Corporation (BPC) faces pressure.
To align domestic prices with the international market, the government introduced automatic fuel price determination method in 2024. In principle, such mechanisms can limit the government’s subsidy burden, reduce BPC’s losses, and support regular energy imports. However, the government should clarify the uniform Tk 20 price hike application because import costs, uses, and social costs differ for diesel, petrol, octane, and kerosene. Therefore, a detailed calculation of the latest prices should be published for transparency.
In any case, Bangladesh is experiencing a particularly challenging energy situation. The Commodity Markets Outlook (April 2026) of the World Bank predicted a 24-percent surge in global energy prices this year. Overall commodity prices are also expected to rise by 16 percent globally.
The government has attributed the fuel-price increase to the Middle East conflict, which reportedly more than doubled international petroleum prices and raised freight costs. Delayed domestic adjustment allegedly led to losses for BPC of Tk 22,875.66 crore in March-August. The government also cited LNG subsidies, the risk of cross-border fuel smuggling, and the need to maintain energy supplies and social protection spending.
Of course, energy prices significantly affect Bangladesh’s economy. Rising oil prices increase the cost of producing and transporting food, fertiliser, raw materials, and goods. Higher natural gas prices also raise fertiliser and electricity costs. This impacts supply chains, inflation, food security, industrial output, and growth.
At the individual level, the first hit is that expenses are likely to rise for all transport types—buses, trucks, motorcycles, ride-sharing vehicles, and various watercraft. However, transport fares should not rise as quickly as energy prices since fuel makes up only one part of operating costs. Vehicle financing, labour, maintenance, tolls, and depreciation also affect transport costs and fares.
Even families that do not buy fuel directly are affected as energy is needed to move essential goods from producers to markets. This raises transport costs and increases prices for these commodities. Low-income families feel the price hikes most keenly as they have to spend more on daily essentials. This leads many to cut back on nutritious food, healthcare, or children’s education.
The agriculture sector will feel the pressure of the new diesel price in terms of irrigation, land preparation, fishing, and transport. Small farmers do not receive higher prices when costs rise, thus reducing their profits, while consumers simultaneously pay more because of higher transport and marketing costs. Hence, small farmers should be provided targeted subsidies.
Post fuel price hikes, industries face higher logistics and backup costs as unreliable electricity and gas supplies often lead to dependence on diesel generators. Export industries cannot easily raise prices due to competition and pre-negotiated prices, so higher energy and transport costs may hurt their profits, investments, jobs, and competitiveness. Small and medium enterprises are the most vulnerable groups as they have lower working capital and weaker bargaining power. These enterprises often use older and less energy-efficient machinery as well. For many, it could be difficult to continue production or maintain the same working hours, while others might pass the increased costs to consumers as higher product prices.
At the macroeconomic level, higher fuel prices will create direct (fuel and transport costs) and indirect inflationary pressure. Indirect effects of the price hike will be felt across agriculture, manufacturing, and distribution sectors. If workers demand higher wages to cover living costs and businesses then raise prices to pass it off to consumers and offset higher costs, a second round of inflation may emerge.
On the other hand, if import costs increase, the balance of trade, foreign exchange reserves, and the exchange rate will be under pressure. However, if fuel prices remain at this level for a long time, BPC’s losses and the government’s subsidy liabilities will increase. Large subsidies could reduce the government’s fiscal space to increase allocations for health, education, social protection, and infrastructure. Ultimately, blanket fuel subsidies will benefit high-income groups more than ordinary people.
In order to effectively respond to the current situation, firstly, the government should publish the benchmark international price, exchange rate, freight and insurance costs, taxes, distribution margins, and averaging period used to determine the retail prices for fuel. The pricing formula should be independently reviewed from time to time and applied symmetrically. If prices decline on the international market and import costs fall, domestic prices should be reduced promptly.
Second, transport fares should be recalculated through a transparent costing exercise. The fare increase rate should not exceed the rate of increase in energy prices. Monitoring of food and other essentials markets should also be strengthened to prevent prices from rising illogically using the energy price hike as an excuse.
Third, subsidies should be targeted. For low-income households, temporary cash and food support should be expanded. Small farmers should be given seasonal irrigation or fuel assistance through digital farmer-registration systems. All support should have clear eligibility criteria, budgetary limits, and expiry dates.
Fourth, the government needs to enhance its import and risk management strategies. The BPC should balance long-term contracts with immediate energy purchases. Import sources should be diversified, and Bangladesh must keep sufficient stocks of essential fuels on hand.
Fifth, the country should implement temporary demand management strategies. A recent International Energy Agency (IEA) report suggests enhancing public transport, promoting car-sharing, optimising freight logistics, encouraging remote work when suitable, and reducing non-essential fuel use.
Ultimately, Bangladesh needs to invest in dependable electricity, solar irrigation, renewable energy, energy-efficient industries, public transportation, railways, and water freight. While the recent fuel price hike may reflect international costs, there is a need for transparency, targeted protections, and energy diversification to prevent these costs from unfairly affecting poor households, farmers, and small businesses.
Dr Fahmida Khatun is an economist and distinguished fellow at the Centre for Policy Dialogue (CPD). Views expressed in this article are the author’s own.
