Iran-Israel conflict raise concern for RMG exports, fuel imports

Infograph: TBS

The expanding garment export markets of Bangladesh across a dozen Middle Eastern countries may encounter a significant setback due to the brewing conflict between Iran and Israel, said industry insiders.

According to Bangladesh Garment Manufacturers and Exporters Association (BGMEA) data, Bangladesh's garment exports to the Middle East surged by over 40% to $533 million between July and February of the current fiscal year compared to the same period of FY23. This is a welcome change considering the decline in exports to traditional North American and European markets.

In addition to RMG exports, Bangladesh's fuel imports from the Middle East may also get hindered as Iran on 13 April seized an Israeli-linked commercial vessel MSC Aries in the Strait of Hormuz, days after Tehran said it could close the Strait, a vital passage for global oil supplies.

Tensions have escalated in the Middle East as Iran, following the seizure of the Israel-linked ship, launched a missile attack targeting Israel in retaliation for last week's suspected Israeli strike on its consulate in Damascus, Syria, resulting in the deaths of 13 people.

As apparel exports to the Middle East thrive, exporters anticipate the region's potential to surpass a $5 billion market within the next five years. However, the Iran-Israel conflict poses a risk to exports in this regional market.

In an over-the-phone conversation with TBS, BGMEA President SM Mannan Kochi said if the current tensions escalate into a full-scale war, the repercussions on the global economy would be far-reaching and severe. The potential impact would surpass our worst fears, as it would involve numerous countries across the globe.

He said although the Russia-Ukraine conflict primarily involves two nations, its global ramifications have led to prolonged economic distress. Tensions are running high following Iran's drone and missile attack on Israel amidst global efforts to mitigate inflation rates, potentially sparking another Israel-Iran war.

"If the global leaders can mitigate the crisis immediately, that will be a big relief for the world. Otherwise, fuel prices could skyrocket if the conflict escalates further due to disruptions in global supplies," said the BGMEA president.

Kochi said if the tension persists, Bangladesh's apparel exports to the regional market could suffer adverse consequences. The fear of potential escalation to conflict at any moment might cause brands to hesitate in procuring products, thereby affecting trade within the sector.

Fazlee Shamim Ehsan, vice president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), also expressed similar concerns about the potential consequences of the tension escalating into a war.

"If the tension escalates into a war, no country will be able to safeguard its economy, affecting not only our exports to the Middle East or Far East countries but also global economic stability.

"Western countries may redirect their focus to oil reserves, impacting the buying capacity of consumers."

Shams Mahmud, the managing director of Shasha Denims Ltd and a director of BGMEA, said, "It is a steadily expanding market for Bangladeshi exporters. The Middle East also serves as a hub for exporting apparel to The Commonwealth of Independent States countries.

"The ongoing tension may affect tourism in the Middle East, which is also related to our apparel business."

Sparrow Group Managing Director Shovon Islam said, "We hope the crisis will not escalate further. Otherwise, not only exports, but our remittance earnings will also fall drastically, as well as fuel imports."

Shovon, who is also a director of BGMEA, highlighted the efforts made by Bangladeshi apparel exporters to enhance the Middle Eastern markets, which have contributed to our export growth.

"The Saudi Arabian government has launched a programme aimed at hosting two crore travellers monthly. Saudi government officials and businessmen have urged us to export goods targeting their tourists," he said.

Bangladesh possesses the potential to export food and beverages, apparel, as well as jute and leather products to Saudi Arabia, which currently imports these goods from the global market at an annual expenditure of $35 billion.

According to the International Trade Centre data, Saudi Arabia's imports stood at $152.34 billion in 2021. China is Saudi Arabia's largest export source, $31.07 billion, followed by the USA, UAE, India and Germany.

On the other hand, Bangladesh exported only $290 million to Saudi Arabia in FY22, of which apparel shipments amounted to about $ 144 million, according to the Export Promotion Bureau data.

Bangladesh braces for fallout in fuel imports

Bangladesh primarily imports fuel oil from Saudi Arabia, Qatar, Kuwait, Dubai, Oman, and other Middle Eastern nations. The country also imports coal and bitumen from the UAE.

According to shipping industry insiders, an average of two million barrels of oil are transported through the strait daily. If the Strait of Hormuz were to close, it would create instability in the energy sector, affecting power generation in Bangladesh.

Moreover, freight charges and fuel prices are likely to see a spike in the coming days, they said.

Khairul Alam Sujan, vice president of the Bangladesh Freight Forwarders' Association, told TBS, "If the strait is closed, the country's energy sector would suffer a significant blow."

In a full-scale war between Iran and Israel, the surrounding sea borders would become vulnerable, leading to changes in shipping routes and consequent increases in freight charges, which have already been high due to the Red Sea unrest, he added.

There are a total of 96 ships flying the Bangladeshi flag, which navigate international sea routes. Among these vessels, there are eight container ships, 15 chemical and gas tankers, and 73 bulk carriers.

Manshood Alam, director of Doria Shipping, who operates two Bangladeshi-flagged oil tankers told TBS, "We are deeply concerned about the potential consequences if shipping were to be halted through this crucial strait as oil transportation from the Middle East typically occurs through the Strait of Hormuz."

Tanjil Ahmed Ruhullah, managing director of Interport Group, a maritime services company, told TBS that the rising operational expenses of vessels due to the instability of sea routes have led to increased freight charges, thereby impacting consumers, as seen during the Red Sea crisis triggered by Houthi attacks.

"Vessels navigating through the Red Sea face heightened threats to crew safety, compelling them to incur higher insurance premiums, potential legal issues, and additional bonuses for seafarers. Prolonged instability in the Strait of Hormuz could likewise have negative repercussions on Bangladesh's shipping sector," said Tanjil Ahmed, also director of the Bangladesh Shipping Agents Association.

According to data from the Bangladesh Petroleum Corporation, crude oil imports totalled over 15.51 lakh tonnes in the 2022-23 fiscal year. Additionally, imports included 48,50,851 tonnes of refined oil such as Jet A-1, SKO, Mogas, and HSD, as well as 4,35,592 tonnes of furnace oil.