Tensions that saw a renewed escalation in the Middle East after the US unilaterally withdrew from the Iran Nuclear Deal in 2018, on grounds that can be at best termed flimsy and unconvincing, are only intensifying by the day.
With the deal in effect, economic sanctions on Iran had been eased. It offered a chance for peace to prevail in the Middle East—peace that could usher in a new era of prosperity: stable oil prices, safe sea-trade passage through the Strait of Hormuz and Gulf of Oman, and for Asia and some African countries especially, better opportunity to export manpower to the lucrative Middle East job market. It was a win-win for everyone. Countries like Bangladesh, which has strong economic ties with the Middle East, heaved a sigh of relief.
And then Donald Trump happened.
What followed was a spate of attacks on trading vessels in the Strait of Hormuz (which the US blamed Iran for without any proof); capture of Iranian oil tanker and a British flagged carrier; the Aramco attack by Houthi rebels (for which Iran was again blamed by the US without any evidence); attacks on US embassies in Iraq; assassination of Iran’s Quds Force leader Qassem Soleimani by the US; Iranian retaliation through shelling of US bases in Iraq; the tragic shooting down of a Ukrainian jetliner in Iranian skies by its army, leading to the tragic loss of 176 lives; and Iran, finally, completely pulling out of its commitments to the nuclear deal.
The Middle East tinderbox has been lit—again.
And the rippling effects of these are being felt in the far reaches of the world—rising oil prices affecting international trade; sea routes in the Gulf of Oman and Strait of Hormuz turning perilous; unrest, violence and bloodshed in the Middle Eastern countries affecting job markets. And countries like Bangladesh, heavily vested in the Middle East for import, export and remittance earnings, are bracing themselves for the possible future scenarios.
First of all, a significant volume of Bangladesh’s oil imports come from the Middle East. According to Bangladesh Petroleum Corporation (BPC), the country imports around 7 lakh tonnes of crude oil—almost half of its 12-13 lakh tonnes demand—from Saudi Aramco alone, and any fluctuation of oil prices in the Middle East has unavoidable consequences for Bangladesh. The four-percent increase in crude prices in the wake of Soleimani’s assassination has had its effect on the various verticals of the Bangladesh economy.
According to CNBC, in the aftermath of the Iranian missile attacks on US bases in Iraq, the prices of Brent crude shot to USD 71.75 per barrel—its highest value since September 2019 when the Saudi Aramco was attacked, shooting oil prices up. This directly led to a 20 percent hike in retail prices of liquefied petroleum gas in Bangladesh. And when prices of energy increase, its effects are felt in every aspect of an economy, from inflation to BoP imbalance—thanks to increased trading expenses.
The escalating tension in the Middle East can also easily trigger Bangladesh’s migraine for another reason: the prospect of its expat workers in that region. Six million of the country’s working population is employed in the Middle East—many of them in Iran—and they contribute significantly to the economic growth of Bangladesh. According to a local news portal, in 2018 remittance sent by the non-resident Bangladeshis accounted for 12 percent of the country’s GDP.
The Daily Star reported earlier this month that the expatriates remitted USD 18 billion in 2018. According to the same report, remittance contribution from the workers in the Middle East makes up for 60 percent of the total workers’ remittance.
Given the statistics, it is only natural for Bangladesh to be afraid of the ongoing situation in the Middle East. In the event of continued unrest in the region, Bangladesh faces a challenge to ensure the safety of its mammoth migrant workforce scattered all over the region. The effect it will have on Bangladesh’s BoP is going to be detrimental, to say the least. And what are the workers going to do once they are back in Bangladesh—assuming that they will return home safely?
Bangladesh’s exports are also going to suffer if tensions continue to mount in the Middle East, with losses on multiple fronts. First of all, Bangladesh’s direct exports to the Middle East will be affected if war breaks out, or even if tensions flare further in the region. According to Bangladesh Export Promotion Bureau data, the country exported around USD 373 million worth of goods to Iran, Iraq, Saudi Arabia, Qatar and UAE between July and December in 2019, which is two percent of its total goods export during that period. Any increase in tension will directly affect this number leading to potentially lower export earning for Bangladesh from the region.
Secondly, if shipping expenses go up due to increased insurance costs for vessels, especially those travelling through the Gulf of Oman and the Strait of Hormuz, it will also affect Bangladesh’s cost of exports to other countries. Bangladesh makes USD 34 billion from its exports of RMG to the US, and should the US engage in a new warfare, its imports of RMG from countries like Bangladesh might get affected. And increased shipping costs might affect the volume of Bangladesh’s exports, leaving its footprint in the country’s already stressed trade balance.
Luckily for Bangladesh, tensions in the Middle East seem to be diffusing. While the US Senate is trying to limit Donald Trump’s ability to take military action against Iran, the world powers and regional players, including Qatar and Canada, are also pushing Iran to take a softer approach. And Iran itself has reiterated time and again that it “does not seek escalation or war”, as has been informed by the country’s Ambassador to the United Nations Majid Takht Ravanchi.
Yet, although Bangladesh has significant vested interest in the outcome of the events unfolding in the region, the events themselves are way beyond the sphere of influence of our nation. We can only hope that this de-escalation is not just a brief interlude, and that some sense, any sense, prevails. And soon.
Tasneem Tayeb is a columnist for The Daily Star.
Her Twitter handle is: @TayebTasneem