Even before the war in Iran broke out at the end of February, energy had become a leading concern for supply chain professionals from apparel and beyond. What the Middle East conflict has illustrated is just how interconnected — and interdependent — energy sources are. With the effective closure of the Strait of Hormuz, countries across Asia have been cut off from oil and natural gas sources. For countries that rely heavily on imports, a protracted blockage will quickly become a crisis.
Underscoring that this is not just a wartime concern, Stan Aronow, vice president, distinguished advisor at Gartner, Inc., said power is the new risk that no one gave much thought to in the past.
“Just like walking into a room in your house and you flip the light switch on, and you just assume that the light is going to go on,” he said at the American Apparel & Footwear Association Executive Summit. “The availability of reliable power is becoming more of an issue — not everywhere — just based on what’s going on in terms of the build out of demand in developed markets.”
He said now, with diversification and companies looking for new production destinations, power has become a factor to watch.
Cliff Henson, corporate vice president, cloud supply chain and provisioning for Microsoft, agreed, saying, “It used to be you would go look for locations to build data centers or factories where it was the lowest cost. Today, it’s where you can find power.”
Henson added this is the new reality, which has led his company to seek out sustainable energy sources.
Bangladesh’s energy crunch
As a top apparel exporter that relies on imports for more than 90% of its energy needs, Bangladesh is an example of the realities facing much of the fashion supply chain.
The country was already struggling prior to the Iran war. While it is on par with competitors like India and Pakistan cost wise, Dr. Mohammad Tamim, former professor of petroleum engineering at the Bangladesh University of Engineering and Technology, told HGI that in terms of energy reliability, Bangladesh is “a little behind.”
“Bangladesh, at one time, was quite self-sufficient in energy, which is gas supply, but that has now gone down to a very low level. Our reserves are all declining,” he said, adding that while companies get first dibs on energy supplies, it’s still not enough. “Many of them, depending on the areas where they are, do have a shortage of gas supply. Many garment factories are compensating with diesel and LPG.”
A recent feature in The Daily Star that spotlighted Bangladesh’s denim industry also highlighted the factors holding it back. Energy concerns led the list. Shams Mahmud, managing director of Shasha Denims, told the publication the industry is hampered by high production costs, limited access to funds and weak renewable energy performance. He also listed inadequate gas supply as a key issue resulting in most mills operating at 60% to 70% capacity.
Showkat Aziz Russell, president of the Bangladesh Textile Mills Association, said gas prices have risen by 400% over the last four years.
In August the Bangladesh Garment Manufacturers and Exporters Association presented a plea to the government to take immediate steps. Citing the “negative impact on exports,” the group laid out a five point plan that included establishing new gas connections and increasing gas pressure.
The LNG trap
Christopher Doleman, LNG/gas specialist, Asia for the Institute for Energy Economics and Financial Analysis (IEEFA), told HGI the country’s energy crisis began just under a decade ago.
“We saw that for the last 50 years, Bangladesh basically built the readymade garment (RMG) sector on having cheap, subsidized natural gas domestically,” he said. “In 2018, it started to change when [liquid natural gas] imports started to show up. Subsidies grew three to five-fold. It started to become really hard for the government to pay for this gas or subsidize it.”
What followed was gas disruptions, production declines and floating terminal outages with pricing “going through the roof” when Russia invaded Ukraine.
To some extent, Bangladesh isn’t unique.
Doleman said many South Asian and South East Asian countries like Thailand, Malaysia, Indonesia and Pakistan are struggling with energy reliability due in part to their dependence on costly LNG.
“When I look at these countries, they’re basically facing a scenario where gas is in structural decline. If you’re reliant on gas to produce your electrons and do your wet processes in terms of steam, you’re susceptible to higher energy costs,” he said.
The math is clear. Domestically sourced gas prices fall between $2 to $5 MMBtu while LNG is typically $10 to $14. There’s also a lot more volatility in that market, as evidenced in recent days with LNG prices hitting $25. And even that doesn’t tell the whole story. Doleman pointed out that lower income countries pay a premium because lenders are wary of their ability to pay. And in crunch times, LNG moves completely out of reach as richer nations outbid them for access.
He called this a fundamental problem not just for Bangladesh but for several sourcing destinations that might otherwise be attractive to brands looking for production partners, particularly Thailand and Pakistan. Vietnam has reduced its LNG plans while the Philippines is taking note of the potential pitfalls. Doleman said Cambodia is one to watch as it prepares to start using LNG while also doubling its solar capacity.
“Indonesia and Malaysia are going to be fine now, but they’re net exporters right now. They’re turning into net importers in the early 2030s so there’s a risk of them falling into this trap then,” he said.
Ultimately, China is insulated because it has its own domestic supply and it has a lot of solar and wind that it could use to defray costs.
Electricity Mix in Select Asian Markets, 2025 (Unless Otherwise Stated)
The war impact
According to the U.S. Energy Information Administration, about 20% of the global LNG supply flows through the Strait of Hormuz. And 83% of that goes to Asian markets, with China, India and South Korea as top destinations as of 2024. The volumes are similar for oil and petroleum products.
Countries most at risk from an oil shortage perspective are the Philippines, Thailand, Malaysia and Brunei, according to Alloysius Joko Purwanto, an economist at the Economic Research Institute for ASEAN and East Asia.
In the face of the growing crisis, countries are already taking steps. South Korea capped domestic fuel prices, Bangladesh is rationing fuel, Vietnam has implemented work-from-home measures, India has redirected gas from industrial users to households and Japan has released oil from its reserves.
Meanwhile exports from affected countries face delays and the cost of inputs for things like polyester are increasing.
“In the short term, we can’t pretend things are not going to be painful for the countries with the red [sections of the chart],” Doleman said. “Indonesia and Malaysia to a lesser extent because they’re also exporters but the oil side is definitely going to harm them.”
Heron Lim, a lecturer of economics with ESSEC Business School, told Time, this is “not only a Middle East oil shock but also a wider Asian gas and power-security problem.”
Last week, the country announced it has enough fuel to cover one month of demand, according to Reuters.
Mahmud Hasan Khan, president of the Bangladesh Garment Manufacturers and Exporters Association, told the publication that power cuts had doubled to up to five hours a day since the war began. With diesel scarce, factories are unable to use backup generators to keep operations running.
A policy paper published by the South Asian Network on Economic Modeling (SANEM) highlights the country’s vulnerabilities and the potential impact to the apparel industry there.
“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,” the paper stated.
SANEM estimates that output from the RMG sector could decrease by 1.5% and up to 4.5% if the energy shock is combined with a shipping disruption that prevents the country from delivering orders. Those losses would then reverberate through employment and incomes.
Tamim noted that prior to the Iran war, the newly elected Bangladesh administration had laid out a 180-day plan that included leaning into renewables more and exploring internal gas resources. Now, the plan is just “firefighting” with supplies stuck. In addition to LNG, Bangladesh has been cut off from its crude sources in Saudi Arabia and Kuwait.
Currently the government is subsidizing energy as prices soar, but Tamim said he’s not sure how long that can go on.
How to move forward
Ultimately, this energy shock, which is the second in the last five years, should be enough to encourage countries to focus on renewable energy, Doleman said.
Already about 10% of factories in Bangladesh have pursued renewables, most in the form of solar, according to Tamim. Despite the costs associated with setting it up, he expects that percentage to increase. From his perspective, factory owners there have consistently shown a willingness to invest in better, cheaper energy, including boilers that operate at 90% efficiency compared to older models that were only 65% efficient.
While the trend toward renewables is positive, there’s a potential downside as well. Pakistan is a prime example. The country is laboring under its own energy crisis as prices rise and more and more residents and industries are defecting from the grid in favor of solar.
“About 20 to 30 years ago, [Pakistan] promised independent power producers fixed dollar returns on the capacity that they installed,” Dr. Aadil Nakhoda, assistant professor of Economics at the Institute of Business Administration in Karachi told HGI. “The problem is that as people have moved away towards solar, that requirement for that capacity from the grid has become less.”
As a result, Pakistan faces a utility death spiral which is caused by a drop in demand triggering higher costs for those still tied to the grid.
Tamim sees a multipronged approach to solving Bangladesh’s crisis, which includes but is not limited to renewables. Among his suggestions are developing the country’s existing coal reserve, enhancing coal production, though it comes with environmental concerns; and tapping into natural gas and adding more FSRU and degasification plants. Additionally, he said the country needs to replace inefficient equipment so it needs less fuel.
Doleman said the apparel industry in general needs to take a note from tech companies, which enter into power purchase agreements with renewable energy corporations to lock in favorable rates. Beyond that, he said governments in production countries must also embrace renewable energy over LNG.
“It really insulates your economy. That’s what we saw during the Ukraine crisis,” he said. “Your currency is going to be less exposed, and you’d have more reliability if you actually could secure your energy domestically, then relying on LNG, which might not be available.”
