US sanctions will spell disaster for Bangladesh

[Black_cats]

US sanctions will spell disaster for Bangladesh​

ANALYSIS​

Professor Mustafizur Rahman
09 March, 2022, 10:40 pm
Last modified: 09 March, 2022, 11:01 pm

The US announcement of banning all imports of Russian oil and gas will spell disaster for Bangladesh in the days to come

Mustafizur Rahman. TBS Sketch

While imposing sanctions on Russia's oil, the United States has committed to release oil from the strategic reserve as part of ongoing efforts to lower prices and address a lack of supply around the world. But the US oil stock is much lower than what Russia supplies, so such an announcement will not be able to calm soaring fuel prices.

The price of crude oil surged to over $130 per barrel and such rising oil prices will have a ripple effect on different commodities. Bangladesh is not shielded from its cascading effect either as it depends on the global market for many products. So, higher import costs can cause trouble for the country's economy with more inflationary pressure.

The prices of various products are already on the rise in the country. In this situation, limited income-people cannot afford to bear an extra burden caused by a fresh hike in commodity prices. It will also be very difficult for the government to deal with the crisis and safeguard the people from the commodity price shock.

The US announcement of banning all imports of Russian oil and gas will spell disaster for Bangladesh in the days to come.

At the moment, the government can provide temporary relief to consumers as well as entrepreneurs in manufacturing and export sectors with a rebate from import duty and VAT.

From the import stage to reaching out products to consumers through retail shops, we have many problems, such as syndication, extortion and wastage. In addition to solving all these problems, the monitoring system needs to be improved to keep the market stable.

The future oil prices in our country's market depends on the administrative decision of the government's part. If prices are not raised, the subsidy pressure on the government will go up.

Bangladesh Petroleum Corporation (BPC) does not have much capacity to stock up on oil as the government takes the company's profits to its exchequer.

Even if the BPC has stock till June, it may have to sign an agreement to buy oil of course at an extra cost in the next few weeks.

Oil prices have risen in the domestic market a few days ago. If prices rise again, production costs in our industrial sector will go up because of increased transportation costs. As a result, domestic consumers will take a hit and foreign trade will face a blow too.

All in all, macroeconomics will face big challenges in the days ahead. At the same time, exchange rate management, import payments and forex reserve management will be much more difficult.

The policy of keeping the exchange rate stable for the protection of consumers may have to be maintained for a few more days. If the dollar rate rises too much, so will the costs of imported goods.

We have to avoid unnecessary imports if any and focus on import substitution. We also need to look at if it is possible to delay imports of goods for any projects in the infrastructure sector. We should give importance to the implementation of projects which are nearing completion. And, we will have to wait until the situation improves to start work on the newly-approved projects.

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Dr Mustafizur Rahman is Distinguished Fellow, CPD

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Dr Mustafizur Rahman spoke to TBS Senior Reporter Jahidul Islam over the phone.

US sanctions will spell disaster for Bangladesh

The US announcement of banning all imports of Russian oil and gas will spell disaster for Bangladesh in the days to come

www.tbsnews.net

 

[bluesky]

Bangladesh Petroleum Corporation (BPC) does not have much capacity to stock up on oil as the government takes the company's profits to its exchequer.

It is too early to talk of stocking oil in BD. Before building up the stock, the country has to build underground tank yards along with firefighting systems in the coastal areas to build large number of tanks.

The price might be very high, a few billion dollars, and it will take more than three years to select the sites, design the tank foundations/ bodies and build/ install them.

By the way, a country starts stocking oil when it is cheap. But, now the oil is $130 per barrel. So, what is the benefit of building up the storing capacity at this time? However, the facilities can be used in the future.

 

[Tshering22]

Correction: the US is banning Russian oil imports to its own territory, not sanctioning it. EU is still buying Russian oil and has refused to support a sanction.

The US cannot sanction as their European partners won't allow it to happen. Therefore, any banning of Russian oil imports will only be with the Americans.

Iran and Venezuela sanctions haven't been lifted as they said NO to joining the US bandwagon. Saudi and UAE are ignoring them too. The only option that the US has is that they will open their own oil pipelines to ensure domestic supply and import more from Mexico.

Bangladesh and other Asian countries need not worry about unilateral decisions to not by.

Rosneft is offering oil for 25-30% discount to us; maybe you can also jump in and lap up to build your strategic reserves.

BTW how much of Russian crude do you guys buy? Is it from the Sakhalin fields?

 

[bluesky]

BTW how much of Russian crude do you guys buy? Is it from the Sakhalin fields?

As far as I know, BD does not import a single barrel of oil from Russia. But, a sanction affects all the supplies because it reduces the volume of supply in the world.

A supply crunch means higher price of oil. This is how BD may be affected.