When distant wars disrupt fuel: Bangladesh’s refinery imperative

Bangladesh's economic expansion has been accompanied by a sharp rise in energy demand. Oil consumption has reached approximately 260,000–270,000 barrels per day, equivalent to around 7 million tonnes annually, driven by transport, power generation and industrial growth.

Yet the country's refining capacity tells a very different story. The only operational facility, Eastern Refinery Limited, has a capacity of about 1.5 million tonnes per year, meeting barely 20–22% of national demand.

This mismatch is structural. Bangladesh consumes like a growing industrial economy but refines like a limited-capacity system, forcing heavy dependence on imported refined fuel.

Consumption versus production: A costly structural gap

The gap between demand and domestic refining is financial. With annual consumption at around 7 million tonnes and refining capacity limited to 1.5 million tonnes, Bangladesh imports nearly 80–90% of its fuel in refined form, paying a premium over crude oil.

Global refining margins typically range between $8 and $15 per barrel, implying an annual value loss of roughly $500–900 million based on current import volumes.

This dependence becomes even more dangerous during geopolitical shocks.

Much of Bangladesh's fuel supply originates from the Middle East through the Strait of Hormuz. Any escalation could push oil prices up by $10–30 per barrel while raising freight and insurance costs by 20–40%.

For Bangladesh, every $10 increase in oil prices adds roughly $600–700 million annually to the import bill. Dependence on imported refined fuel therefore leaves the country strategically exposed to global conflict.

Limitations of the existing refinery

The existing refinery faces both technological and structural constraints.

Built in the late 1960s, it has limited flexibility to process diverse crude types or produce cleaner fuels. Its location in Chattogram also creates inefficiencies, as large crude carriers cannot dock directly and require lighterage operations that add around $1–2 per barrel in handling costs.

The refinery is also not integrated into a broader energy ecosystem involving LNG, deep-sea logistics and industrial clusters.

Even at peak capacity, it cannot significantly reduce import dependence. It remains a valuable but insufficient legacy asset and, in today's geopolitical environment, a clear strategic vulnerability.

For Bangladesh, every $10 increase in oil prices adds roughly $600–700 million annually to the import bill. Dependence on imported refined fuel therefore leaves the country strategically exposed to global conflict.

Why Moheshkhali–Matarbari matters

The location of a second refinery will be critical to its long-term viability.

The Moheshkhali–Matarbari corridor offers a major advantage through deep-sea access that enables direct handling of Very Large Crude Carriers (VLCCs), reducing transport costs by up to 30–40%.

The area is already supported by Single Point Mooring (SPM) facilities, storage and pipeline infrastructure.

It is also emerging as a national energy hub, with LNG capacity exceeding 1,000 MMCFD alongside power plants and industrial clusters.

Compared to Chattogram, where expansion would retain many existing inefficiencies, Moheshkhali–Matarbari offers the foundation for a modern energy economy.

Can a second refinery pay for itself?

A key question is whether a $3–5 billion investment would be financially viable.

Experiences from comparable economies suggest it would not only be feasible but potentially profitable. Replacing even 30–40% of refined fuel imports could save Bangladesh $400–800 million annually, implying a payback period of roughly six to 10 years.

The broader economic gains could be substantial, including the creation of 5,000–10,000 jobs, expansion of petrochemical industries and reduced pressure on foreign exchange reserves.

More importantly, during crises such as the current tensions involving Iran, domestic refining capacity could serve as a strategic buffer by stabilising fuel supply and cushioning external shocks.

Lessons from Asia

Several Asian countries offer useful lessons.

India expanded its refining capacity to more than 250 million tonnes annually, transforming itself into a major exporter of petroleum products.

Indonesia is investing more than $20 billion in refinery upgrades to reduce import dependence.

Singapore, despite having no crude reserves, processes more than 1.5 million barrels per day by leveraging its geographic advantage.

Bangladesh does not need to replicate these models entirely. But it can adapt their core principles: strategic scale, integrated infrastructure and geographic advantage.

The barriers slowing progress

Despite strong economic justification, several barriers continue to slow progress.

These include high capital requirements, institutional fragmentation, supply chain restructuring challenges and environmental concerns. Project delays and governance risks have also increased uncertainty.

Turning constraints into opportunity

These challenges can still be addressed through a structured policy approach.

This would require public-private partnership (PPP) models to mobilise capital, long-term crude supply agreements to ensure stability, and a centralised project authority to accelerate decision-making.

It would also depend on integration with Moheshkhali's energy infrastructure, alongside technology partnerships, skill development and pricing reforms aimed at improving commercial sustainability.

Energy as national security

Energy security is no longer only an economic issue — it is a strategic one.

Bangladesh's dependence on imported refined fuel leaves the country vulnerable to price volatility, supply disruptions and geopolitical shocks.

The tensions surrounding Iran and the Strait of Hormuz demonstrate how distant conflicts can destabilise domestic economic conditions.

A second refinery would strengthen Bangladesh's strategic autonomy by diversifying crude sources, reducing import dependence and improving resilience.

It would shift Bangladesh from being a passive price-taker to a more capable energy manager.

Investment today, security tomorrow

The case for a second refinery is purely strategic.

With clear financial returns, proven regional examples and rising geopolitical risks, Bangladesh now faces a defining question: not whether it can afford to build a second refinery, but whether it can afford to delay one any longer.

Md Nazrul Islam is a former executive chairman of BEPZA, a retired major general of the Bangladesh Army, and a PhD researcher on technology, workforce transformation and industrial competitiveness.

Disclaimer: The views expressed in this article are the author's own and do not necessarily reflect the position of The Business Standard.