Bangladesh, Pakistan and Sri Lanka face economic risks from Iran war as rising oil prices, import dependence, and limited reserves threaten growth, inflation, and credit ratings, reports Asian Lite Newsdesk
South Asian economies, particularly Bangladesh, Pakistan, and Sri Lanka, are increasingly vulnerable to the fallout from the ongoing Iran conflict, according to a report by S&P Global Ratings.
High dependence on imported energy, limited reserves, and fragile fiscal positions make these countries susceptible to disruptions in global oil markets, which could threaten economic recovery and affect sovereign credit ratings.
The report highlights that sustained high energy prices and potential interruptions in trade and remittances could derail progress in fragile economies.
Bangladesh, for instance, relies almost entirely on imported crude and refined oil products, with reserves sufficient for less than a month. Nearly 50 per cent of its electricity generation is gas-fired, and around a quarter of gas demand depends on imports, which could face disruption amid prolonged West Asia tensions.
Rising fuel costs are expected to stall the gradual decline in inflation over the next three to six months, with February data showing inflation at 9.2 per cent, up from 8.6 per cent in January.
The country’s low revenue-to-GDP ratio, around 9 per cent for FY 2025-26, and prolonged economic slowdown following the mid-2024 government collapse further compound risks.
The S&P report also notes that while Pakistan, Sri Lanka, and Bangladesh show signs of economic recovery, persistent oil price shocks could undermine this momentum.
By contrast, Laos is less exposed due to its hydropower reliance and a more balanced fiscal position, though it remains vulnerable to extended energy shocks.
Foreign exchange reserves in Bangladesh have risen to $29.6 billion as of March 12, 2026, up from $19.7 billion last year, providing some buffer against short-term disruptions.
However, the report warns that prolonged global energy shocks could still impact growth, inflation, and external balance, underlining the need for careful monitoring and policy readiness.
