Bangladesh Garment Industry Presses for Diesel Priority as War-Driven Output Falls 30%
The BGMEA is lobbying Dhaka for preferential fuel access after the US-Iran war cut industrial production capacity by roughly a third across manufacturing hubs.
Bangladesh's garment exporters called on the government on Tuesday (2026-07-07) to prioritise diesel allocations for the factory sector, citing energy shortages stemming from the US-Iran war that have caused production capacity across the country's industrial hubs to fall by around 30%. The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) framed the request as a matter of economic survival for an industry that generates 83% of the country's total export earnings.4
The urgency is straightforward. The ready-made garments sector accounts for 8% of Bangladesh's nominal GDP and employs approximately 4 million workers across around 3,500 factories. A sustained fuel squeeze that keeps those factories running at a third below capacity does not just hurt the manufacturers — it hollows out Bangladesh's hard-currency revenue base and threatens the growth trajectory that has averaged 6% annually since independence.4
The diesel shortage sits on top of a broader cost squeeze. Industry bosses say input costs have risen 10-15%, driven by dearer diesel and petrochemical-based dyes; an industry body puts the overall contraction in factory output at between 30% and 40%.1 Urea, much of it produced in the Gulf, has risen 50% in price since fighting began, adding to a sweeping inflation in imported inputs that is running through the entire supply chain.1
Bangladesh's exposure runs through the Strait of Hormuz. The country receives nearly two-thirds of its LNG supplies through the strait, making it among the most vulnerable major economies in South Asia to any extended disruption.3 Around 30 billion cubic metres of LNG has been removed from global supply chains since the conflict began, and more than 80% of that shortfall has landed in the Indo-Pacific region, according to Henning Gloystein, managing director of energy and resources at Eurasia Group.2
Bangladesh has responded partly by expanding coal-fired generation, a pattern repeated across South Asia. India has ordered its coal plants to run at maximum capacity and cancel planned outages; both Bangladesh and India have increased coal-fired power imports.2 Petrol prices across South-East Asian countries have risen 42% since the war began, against a global average increase of 14%.3
The BGMEA's diesel request has a direct counterpart in the government's existing incentives for alternatives. Dhaka recently cut import duties on solar panels and inverters to 1%, a measure aimed at accelerating on-site renewables in the export sector. But mounting structures still carry a 58.6% duty, and battery storage remains heavily taxed, degrading the economics of rooftop solar as a near-term diesel substitute.4 For factories that need despatchable power now — and need it to run the same production lines that drove 83% of export earnings last year — those barriers leave diesel as the only credible option.
The macro overhang is severe. The United Nations estimates a prolonged war could shave up to 3.6% from South Asia's GDP, and the Kiel Institute projects food-price inflation in India, Pakistan and Sri Lanka could exceed 10% this year.1 Bangladesh has so far avoided the worst of the consumer price spiral, but sustained industrial underperformance in the garment sector would transmit through wages and employment into household demand.
ICE Brent crude front-month was trading at $72.52 on Tuesday (2026-07-07), down 0.66% on the session, suggesting markets are pricing some eventual supply normalisation. But crude prices tell Bangladesh little. The constraint is not the global oil price — it is whether Dhaka will allocate scarce diesel stocks to industrial users ahead of retail demand. BGMEA's lobbying is effectively a queue-prioritisation argument in a controlled-supply environment. The outcome in the coming weeks will set the trajectory for factory output well into the second half of the year.