The rising cost of a distant war

The prolonged war of choice initiated by the US and Israel against Iran has inflicted severe hardship on millions of already strained working people in Bangladesh and across the world. The situation is approaching a breaking point. Although there was a fragile two-week pause in hostilities, the mutual blockade and counter-blockade imposed by Iran and the US on commercial shipping through the Strait of Hormuz effectively disrupted a vital economic lifeline for countries across the Asia-Pacific that depend heavily on supplies from Gulf nations.

The conflict has not only disrupted global supply chains but also sharply increased shipping costs due to the lack of insurance coverage and the sudden surge in premium rates. Disruptions in oil and gas supplies have led to shortages, rising prices, and long queues at fuel stations in Bangladesh, resulting in lost work hours. The ripple effects are widespread: power generation has been curtailed, factories are either idle or operating at reduced capacity, and the agricultural sector faces mounting difficulties. Farmers are struggling to operate irrigation pumps due to diesel shortages, cannot secure essential fertiliser, and are sometimes being forced to let crops rot in the fields as transportation costs become prohibitive.

This war has come at an especially difficult time for Bangladesh, where ordinary people have already been grappling with repeated inflationary shocks. The lingering effects of Covid pandemic, coupled with domestic political instability, have deepened these challenges. Years of economic mismanagement and corruption under the previous administration, followed by a turbulent political transition and prolonged uncertainty, have further strained the economy. During this period, people have endured currency depreciation and stagnant wages. The finance minister recently said the ongoing conflict has already cost us an estimated $2 billion.

At the recent World Bank-IMF Spring Meetings in Washington, up to $150 billion in new financing was pledged to support developing countries most affected by the global energy price shock. Yet, financial leaders expressed concern at being drawn into yet another crisis triggered by geopolitical conflict. Reflecting the seriousness of the situation, the IMF has revised global growth projections downward to 2.5 percent, warning that a prolonged war could push the world economy into recession. The meeting underscored both the limited capacity of global financial institutions to offset such shocks and the urgent need for a resolution to the conflict.

In light of these unusually harsh conditions, a pragmatic policy response is essential. Our government must take all possible steps to ease the burden on low- and middle-income households. Recent increases in cooking gas prices have raised concerns that further price hikes may follow, which would inevitably drive up the cost of essential goods. Policymakers should therefore avoid making overly optimistic or unrealistic claims about inflationary pressures. For example, the commerce minister’s statement in parliament on Monday that fuel price hike is unlikely to stoke inflation is not supported by any evidence. A transparent acknowledgment of external factors driving the crisis would likely foster greater public understanding and trust, rather than creating false expectations.