Geopolitical Conflict and Economic Spillovers: Simulating the Impact of a Middle East War on Bangladesh
Citation: Raihan, S. (2026). Geopolitical Conflict and Economic Spillovers: Simulating the Impact of a Middle East War on Bangladesh. SANEM & Australian High Commission Policy Paper Series. SANEM Publications, Dhaka, Bangladesh.
Geopolitical tensions in the Middle East have traditionally had implications that go far beyond the direct combat zone. The economic fallout of a protracted war in the region could be particularly consequential for Bangladesh. The country is highly reliant on energy imports, has deep trade relationships with global markets, and receives large remittance inflows from migrant workers working in the Gulf economies. And so any disruption affecting energy supply routes, maritime trade corridors, or economic activity in host countries can in turn spread quickly through Bangladesh’s economy.
Using the Global Trade Analysis Project (GTAP) computable general equilibrium model, this policy paper analyzes these risks. Various simulation scenarios have been developed to encompass the key channels via which a long-standing Middle East conflict may impact Bangladesh. They include sharp rises in global oil and liquefied natural gas prices, rising international freight costs arising from disruptions to maritime routes, and a potential drop-off in remittance inflows by Bangladeshi workers in the Gulf region. This analysis then follows the narrative of energy cost, trade logistics, and household income changes through production networks, trade flows, and macroeconomic indicators by embedding these shocks into the GTAP framework.
The simulation results indicate that Bangladesh would experience a spell of moderate to significant economic stress under such a scenario. Higher energy prices increase production costs in many sectors and fuel inflation. Trade disruptions weaken export performance, particularly in industries closely tied to global supply chains such as readymade garments. A decline in remittance inflows would reduce household consumption and increase external balance pressures at the same time. When these shocks hit at the same time, the model predicts a short to medium term GDP drop of 1.2 to 3 percent, accompanied by downward pressure on real wages and slower growth in export sectors.
The sectoral results show uneven effects across the economy. Energy-intensive manufacturing industries face substantial cost pressure, while export-oriented sectors encounter both demand contraction and higher logistics costs. The same is the case with transport and logistics services, which are significantly impacted by rising fuel costs and falling trade volumes. Even those sectors that are relatively more domestically oriented, like agriculture, feel indirect effects through increased input prices and weakened domestic demand.
The findings underscore the wider challenge of economic resilience in an increasingly uncertain global environment. Bangladesh’s development model has derived significant benefits from its integration with global markets, but this same integration renders the economy increasingly vulnerable to external shocks emanating from important geopolitical theatres. Increasing resilience involves policy measures from multiple areas: diversification of energy sources, strengthening trade logistics infrastructure base, wider networks of export diversification, and balanced migration strategies for overseas employment.
Although the simulations are not forecasts of precise outcomes, they offer important guidance on potential magnitude and pathways through which economic impact might unfold. The analysis underscores the importance of preparing for external shocks that arise from geopolitical instability, particularly those affecting global energy and trade systems. In doing so, the paper contributes to ongoing policy discussions on how Bangladesh can sustain growth while managing the vulnerabilities associated with an increasingly interconnected global economy.
