Bangladesh has once again raised the price of petroleum products, exposing a familiar contradiction in the country’s energy policy: global oil shocks are imported almost immediately into domestic prices, while the fiscal and social costs of insulating consumers from those shocks are left to accumulate elsewhere. From September 21, diesel is being sold at BDT 135 per litre, petrol at BDT 160, octane at BDT 165 and kerosene at BDT 155, following a BDT 20 increase across all four major petroleum products. These are the highest retail prices on record for Bangladesh. The government has since kept these prices unchanged for October, meaning the September adjustment remains in force.
The immediate explanation is straightforward: the international oil market has undergone a dramatic reversal in 2026. After remaining relatively subdued through much of 2025, Brent crude prices surged sharply in the spring, briefly crossing the $100-per-barrel mark and reaching well above $110 in April. Although prices eased in the following months, they remained significantly higher than the levels seen for most of the previous year. By October 6, Brent was still hovering around $100 a barrel, turning what had seemed like a temporary price shock into a more persistent pressure on oil-importing economies. On October 6, Brent crude was trading at roughly $100.6 per barrel.
What makes the current shock different is not simply that oil has become more expensive, but that the assumptions behind last year’s relatively comfortable market have broken down. Supply disruptions, geopolitical tensions and higher shipping and insurance costs have made energy imports more expensive precisely when Bangladesh is least equipped to absorb another external shock.
For Bangladesh, the problem is amplified by structural dependence on imported energy. The country imports roughly 92 percent of the petroleum products it consumes. In FY 2025-26, Bangladesh’s spending on crude oil and petroleum, oil and lubricants imports reached a record $10.63 billion, up from $5.14 billion a year earlier. Crude-oil import expenditure rose by 92 percent to $1.20 billion, while spending on petroleum, oil and lubricants increased by 109.1 percent to $9.44 billion, according to Bangladesh Bank data. Fuel imports accounted for 14.13 percent of Bangladesh’s total merchandise import bill of $75.24 billion in FY 2025-26.
The consequences are already visible in the finances of Bangladesh Petroleum Corporation. Between March and August 2026, BPC incurred losses of about BDT 228.75 billion. Before the latest adjustment, the corporation estimated that it was losing roughly BDT 89 on every litre of diesel sold, equivalent to about BDT 1.09 billion a day. The government expects the BDT 20 increase to reduce BPC’s annual losses by approximately BDT 100 billion.
This creates a genuine policy dilemma. Keeping prices artificially low can protect households and businesses from an external price shock, but it also transfers the burden to the public balance sheet, foreign-exchange reserves and ultimately taxpayers. Raising prices fully in line with international costs, on the other hand, can intensify inflation because diesel is not merely a household fuel. It is an input into transportation, irrigation, manufacturing, electricity generation and the distribution of food and other necessities.
Diesel deserves particular attention because it sits at the centre of Bangladesh’s productive economy. It powers transport, irrigation, industry and parts of the power sector. A rise in diesel prices therefore does not remain at the fuel station; it travels through freight charges, agricultural costs, food prices and ultimately household budgets.
The recent adjustment has already generated concerns about transport and business costs. Transport operators have begun discussing higher fares, while business leaders have warned that increased fuel costs could raise production and distribution expenses and weaken export competitiveness.
The obvious temptation is to demand that the government simply subsidise fuel until international prices come down. That approach, however, would confuse temporary relief with sustainable policy. Bangladesh’s experience demonstrates that untargeted fuel subsidies can become extraordinarily expensive. The International Monetary Fund has also argued that Bangladesh should consistently apply an automatic fuel-pricing mechanism so that the financial position of BPC does not deteriorate through politically determined underpricing.
The answer, therefore, is not to abandon market-based pricing but to make the system considerably more intelligent.
Bangladesh introduced an automatic fuel-pricing mechanism in March 2024. Under the system, domestic prices are adjusted according to international petroleum prices and incorporate import costs, taxes, exchange rates, BPC margins, distribution costs and other components. The original intention was to reduce arbitrary price-setting and prevent the accumulation of large subsidies. The mechanism remains in place, with the government retaining the September rates for October 2026.
But an automatic mechanism does not necessarily mean an efficient mechanism. The Centre for Policy Dialogue has previously argued that the existing formula contains cost and financing components that warrant revision and that a better-designed formula could reduce the retail price without returning to indiscriminate subsidies.
The first reform should therefore be greater transparency in the pricing formula. Every monthly adjustment should be accompanied by a publicly accessible calculation showing the international benchmark price, exchange rate, freight and insurance costs, taxes, BPC costs, dealer margins and the final retail price. Citizens should be able to see whether a BDT 10 increase reflects a BDT 10 increase in import costs or whether other components have changed. Transparency is not cosmetic. It is a mechanism for disciplining both government and state-owned enterprises.
At the same time, Bangladesh should introduce a price-smoothing mechanism rather than mechanically passing every international fluctuation to consumers. A rule could allow domestic prices to move within a predetermined band around a rolling international average. When international prices rise sharply, part of the shock could temporarily be absorbed through a stabilisation fund; when prices fall, the fund could be replenished. This would preserve the basic logic of market pricing while preventing sudden price movements from being transmitted immediately through transport, food and agriculture.
Subsidies should also become targeted rather than universal. If fiscal resources are available, they should not be spent subsidising every litre purchased by every consumer. Diesel used for irrigation, public transportation or strategically important agricultural production could receive temporary, explicitly budgeted support during extreme price shocks. Wealthier motorists and discretionary fuel consumption should not receive the same fiscal treatment as food production or essential public transport.
The government should also reconsider the tax structure surrounding petroleum products during exceptional international shocks. Fuel taxation provides revenue, but when the international component of the price suddenly increases, maintaining every tax component unchanged can magnify the shock. A temporary and transparent adjustment of selected duties or taxes during extraordinary price spikes could provide relief without creating a permanent subsidy regime. Such a measure should have a clearly defined sunset clause.
Bangladesh also needs to treat fuel storage as an economic security infrastructure. A country that imports most of its petroleum cannot rely entirely on spot-market purchases during a geopolitical crisis. Larger strategic and commercial stocks would allow BPC to purchase more when prices are favourable and reduce its exposure when shipping costs, insurance premiums or geopolitical risks suddenly surge. This would not eliminate price volatility, but it could make the country’s import strategy less vulnerable to short-term disruptions.
BPC’s finances require structural reform. The corporation should not be forced simultaneously to function as an importer, price stabiliser and quasi-fiscal institution without a transparent accounting of these responsibilities. If the government wants BPC to subsidise consumers for social-policy reasons, that subsidy should appear explicitly in the national budget rather than being hidden inside the corporation’s balance sheet. This distinction matters because opaque losses eventually become fiscal liabilities anyway.
Finally, Bangladesh needs to reduce its exposure to petroleum itself. Energy efficiency, mass public transportation, electrification where economically viable, improved railway freight, renewable electricity and more efficient irrigation can gradually reduce the amount of imported fuel required for each unit of economic activity. The cheapest barrel of imported oil is ultimately the barrel that the economy does not need to buy.
The current crisis should therefore not be treated merely as a question of whether diesel should cost BDT 115 or BDT 135. That is the most visible part of the problem, but not the most important one. Bangladesh is confronting a structural vulnerability created by high import dependence, foreign-exchange exposure, volatile global energy markets and an energy-pricing system that is still evolving.
There is no painless solution. Someone must absorb an international oil shock: consumers, the government budget, BPC, businesses or some combination of all four. The policy question is not whether the shock can be made to disappear. It is whether the burden can be distributed in a way that protects vulnerable households, preserves fiscal stability and prevents temporary geopolitical shocks from becoming permanent domestic inflation.
The recent BDT 20 increase may reduce BPC’s immediate losses, but it cannot by itself solve the underlying problem. Bangladesh needs a fuel-pricing system that is automatic but not mechanical, market-oriented but socially conscious, fiscally disciplined but capable of temporary intervention, and transparent enough for citizens to understand exactly what they are paying for.
The objective should not be artificially cheap fuel. It should be predictable fuel prices, targeted protection and a smaller structural dependence on imported petroleum. That is a much harder policy than simply changing the price at the pump. It is also the policy that Bangladesh will eventually need if every geopolitical crisis is not to become another domestic cost-of-living crisis.
Md Arafat Imran is a student of Political Science at the University of Dhaka.
[The views expressed in this article are the author’s own and do not necessarily reflect the position of The Daily Bonik Barta or the organisation they work for.]