A new global energy shock is once again affecting markets, and the experiences of Pakistan and Bangladesh are showing how different energy choices can lead to very different outcomes.
In 2022, South Asian countries faced power cuts and high inflation when LNG prices surged after the Russia-Ukraine war. After that, Pakistan and Bangladesh took different paths. Pakistan moved towards solar energy, while Bangladesh continued relying on long-term LNG imports.
Iran Crisis Creates New Challenges
Now, tensions involving Iran have created another crisis. After US and Israeli airstrikes on February 28, Iran blocked the Strait of Hormuz, a key route for global fuel supply. This disrupted LNG shipments, forcing Bangladesh to turn to the expensive spot market.
Between March and May, Bangladesh bought 11 LNG cargoes at an average price of $21.35 per unit, nearly double the earlier cost. This alone costs the country about $880 million, which is close to 15% of its average monthly imports this fiscal year.
Bangladesh's Struggle with Rising Costs
To manage rising costs, Bangladesh has sought $2 billion in external funding and reduced public spending. It is also planning to buy three more LNG cargoes for May, as electricity demand is expected to rise amid increased air conditioning use.
Bangladesh's dependence on imported energy has also grown. Around 60% of its electricity now comes from imported gas, coal, and expensive power from India, compared to 42% in 2021. At the same time, its renewable energy growth has remained slow.
Pakistan's Solar Success Story
Pakistan, however, has taken a different route. By expanding solar energy, it reduced its dependence on imported fuels from 32% to 25%. It has not made any spot LNG purchases during the current crisis. While some power shortages may occur at night when solar power is unavailable, they are expected to be minimal.
Pakistan's shift to solar has also helped it save around $12 billion in oil and gas imports over the past four years. Cheaper solar energy is now encouraging people to switch from petrol vehicles to electric motorbikes.
Regional Impact and Lessons
Experts say Bangladesh can learn from Pakistan's approach to reduce its exposure to fuel price shocks. The issue is not limited to one country. Across Southeast Asia, governments spent a record $105 billion on fuel subsidies in 2022, 60% higher than previous levels, to protect people from rising prices.
Countries like Thailand and the Philippines also saw high inflation due to their reliance on imported energy.
The Global Renewable Energy Transition
Globally, renewable energy is growing fast. In fact, fossil fuel-based power generation has begun to decline even during crises, thanks to increased renewable capacity.
Experts say replacing planned gas-based power with solar in Southeast Asia could cut electricity generation costs by up to 60%. With most countries still depending on imported fossil fuels, the current crisis is a clear warning.
The message is simple: moving faster towards clean energy is not just good for the environment, it is necessary to protect economies from future shocks.
