As signs of an approaching agreement concluding the war between the US and Iran emerge, studying the economies that have been effectively paralyzed by the consequences of the conflict this year has become relevant.
In March 2026, when tensions and exchanges of threats and missiles escalated in the Strait of Hormuz, the consequences of this event reached countries such as Dhaka, Islamabad, and Colombo before they affected Washington or Brussels. This moment proved to be less a geopolitical crisis and more endless queues for fuel in South Asia, leading to the closure of restaurants and households plunging into darkness due to constant power outages.
Bangladesh, Pakistan, and Sri Lanka—three nations with virtually no domestic oil reserves and no significant influence on global commodity prices—bore the brunt of the energy shocks from a war they did not provoke. This reflects the nature of fossil fuel dependence in South Asia, and this phenomenon is not new, recalling the oil price bubble of 2008 and the price surge after the Russia-Ukraine war in 2022, when Russia restricted supplies and caused gas price shocks.
However, what distinguishes 2026 is the emergence of accessible alternatives that some of these countries have already begun implementing. The main question is whether they will actively develop this foundation before the next disruption or once again react to the damage post-factum. Pakistan, Bangladesh, and Sri Lanka must develop sectoral roadmaps—energy, transport, and agriculture—based on what has already proven achievable and scale up these successes.
The primary vulnerability in these three countries lies in the market structure, which ensures that any rise in global gas or oil prices will be passed on to electricity consumers, regardless of the volume of renewable generation in the grid. In Bangladesh, where 42% of installed capacity comes from gas, the country met 65% of its electricity needs through imports in the 2024–2025 fiscal year. In Sri Lanka, the Ceylon Electricity Board still relies on significant capacity running on diesel and coal, and fossil fuels remain one of the largest categories of commodity imports.
In Pakistan, during the 2024–2025 fiscal year, furnaces and enterprises using imported coal were largely idle, showing average utilization rates of only 2% and 23% respectively. However, all power plants, regardless of fuel type, continue to receive fixed payments, increasing Pakistan's annual payment burden for power to 1.8 trillion Pakistani rupees ($6.58 billion), accounting for about 61% of total electricity procurement costs.
The way out of this situation is clear. To reduce dependence on imported oil and strengthen energy security, the energy sector of these three countries must decisively transition to renewable energy sources. Pakistan's solar expansion, stimulated by small citizen installations, is the clearest example of potential benefit: a recent survey by the analytical center Renewables First, where the author works, estimates that over 38 gigawatts (GW) of distributed capacity was added to the country by 2024–2025. Since 2020, this surge has helped reduce fuel imports by approximately $12 billion, providing a critical buffer during the crisis in Southwest Asia.
Sri Lanka has also shown progress, reportedly generating 72% of its electricity from renewable sources in June 2025 through hydropower, rooftop solar panels, and wind energy, setting a 2024 target to create 5.8 GW of new renewable capacity by 2030. Bangladesh, however, lags behind: in 2025, renewables accounted for only 3.6% of installed capacity, despite a technical potential of up to 156 GW of utility-scale solar and 150 GW of wind energy. Bangladesh's renewable energy policy for 2025 aimed to provide 20% of electricity generation from renewables by 2030, but achieving this goal requires urgent acceleration.
Scaling up solar and wind production requires accelerated permitting, competitive auctions, and long-term contracts that guarantee stable returns for investors and lower initial capital costs. All taxes and import duties on solar, wind, and storage technologies must be abolished to accelerate adoption at residential, commercial, and utility levels. According to a report by the international analytical center Energy Transitions Commission, 70–90% of costs in clean energy systems are initial capital.
Simultaneously, construction of new fossil fuel infrastructure must cease to avoid creating surplus capacity, illiquid assets, and environmental damage, redirecting funds to increase the share of renewables in the energy balance. The report states that the global transition to clean energy requires annual investments of $3.5 trillion to create energy supply and transport systems whose operating costs are equal to or lower than those of fossil fuel systems. It is important to develop plans for the early decommissioning of outdated fossil fuel facilities, as well as reviewing burdensome contracts and repurposing coal plants using technologies such as thermal energy storage.
Under their Nationally Determined Contributions (NDCs) for climate action, all three countries show some progress. Bangladesh has set quantitative targets to replace 95% of liquid fuel peak power plants with cleaner alternatives by 2035. Sri Lanka introduced a moratorium on new coal capacity alongside its carbon neutrality goals by 2050, while Pakistan documented a 41% reduction in coal imports between 2021 and 2025, planning phased capacity reductions for 2025–2035.
Nevertheless, all three countries need to do more to translate these signals into comprehensive, legally binding phase-out schedules that specify the closure dates of individual facilities, not just aggregated national targets. There is an urgent need to revise power purchase agreements, decommission baseload plants, and repurpose existing coal facilities—and all of this must happen within strict timelines and with a clearer path.
The most critical requirement is grid flexibility, achieved through the integration of station and utility-level storage systems, demand management, digitalization of smart grids, and modernization of transmission line interconnections to reduce losses. Energy planning must also go beyond minimum cost criteria, considering climate impact and whether primary resources are local rather than imported.
In Pakistan, Bangladesh, and Sri Lanka, transport remains the largest source of oil demand, dominated by two- and three-wheeled motorcycles, which account for 84%, 78%, and 72% of national fleets, respectively. Electrifying this segment offers the fastest route to reducing imports, as battery costs have fallen by more than 90% since 2010, and electric two- and three-wheelers are already price-competitive. The International Energy Agency forecasts that electric vehicles could reduce global oil demand by about 5 million barrels per day by 2030, equivalent to about 5% of global demand. The Ember analytical center estimates that fully replacing imported oil in road transport with electric vehicles could cut the bills of fuel-importing countries by more than $600 billion annually. For South Asia, electrifying road transport is one of the biggest levers for reducing exposure to external shocks.
To finance charging infrastructure, subsidized loans, and fleet conversion, a targeted revenue stream must be created by limiting taxes and levies on gasoline and fossil fuels. Immediate steps include lowering tariffs on imported electric vehicles, restricting the influx of used internal combustion engine (ICE) vehicles, and mandating the electrification of government fleets to create visible early demand. It is equally important to strengthen deadlines for phasing out ICE vehicles, learning from the EU's mandate for zero-emission vehicles by 2035 (EU Regulation 2019/631) and Ethiopia's ban on fossil fuel vehicle imports in 2024.
In the long term, governments must secure a domestic industrial base for electric vehicles, components, and charging infrastructure through targeted fiscal and industrial incentives, ensuring that the transition creates jobs and saves foreign currency, rather than replacing one import dependency with another.
Agriculture is a sector where the stakes of energy insecurity are highest and least discussed. This sector accounts for 24% of Pakistan's GDP, 11.2% of Bangladesh's GDP—with 38% of the population employed—and 7.5% of Sri Lanka's GDP, supporting over a quarter of the workforce. In all three countries, rural poor dependent on farming face minimal incomes, low access to credit, and the most direct exposure to diesel and fertilizer price shocks.
The most urgent intervention should be solarization of irrigation systems. In Pakistan, about 60% of agriculture depends on groundwater pumped by diesel pumps or connected boreholes. The 2025 'Punjab Solar Tubewell Scheme', which offered subsidies of up to 1 million Indian rupees for a system to convert existing diesel and electric pumps to solar energy, attracted over 530,000 applicants for only 8,000 spots. This program aimed to eliminate recurring costs for diesel and electricity, which are among the largest expenses for farmers. Scaling up this provincial initiative to a national program supported by a federal green agriculture financing window offering low-interest loans and government co-financing represents the most obvious opportunity.
Bangladesh faces a similar problem: irrigation accounts for 43% of total agricultural resource costs, and the Asian Development Bank has allocated $42.4 million to replace diesel pumps with solar irrigation systems for over a million farmers. However, the pace of adoption has slowed significantly below the 2019 peak, with cumulative installed capacity growing by only a few megawatts per year—a tiny fraction of the rate set in 2019, according to the national SREDA database. The slowdown is primarily due to financing and implementation issues, not technology: high equity requirements and strict bank guarantee conditions limit adoption even where subsidies exist.
This shows that the binding constraints are finance and policy implementation, not technology. Currently, Sri Lanka lacks a program for the systematic replacement of diesel irrigation pumps with solar on a large scale. All three countries must view access to solar energy for rural communities not as an environmental measure, but as a priority for financial inclusion and food security. This requires structured financing mechanisms capable of reaching smallholder farmers and cooperatives. It is not a quick fix, but the foundation must be laid now, supported by multilateral development bank financing, so that the next price shock finds these countries better prepared than they were last time.
The Strait of Hormuz is open now, albeit not at full capacity. Over time, another geopolitical or armed conflict will replace this crisis, because, as they say, peace is merely an interlude between two wars. Therefore, energy security must be built from within. The cheapest barrel of oil is the one a country never had to buy.
