Executive Summary

The disruption around the Strait of Hormuz has brought up the old question of its strategic implications for South Asia – can the region reduce its dependence on western sea lanes by expanding its eastern maritime connectivity through the Bay of Bengal? For countries like India, Bangladesh, Sri Lanka, as well as landlocked states like Nepal and Bhutan, the Bay of Bengal may not substitute for Gulf hydrocarbons, but can be a platform for strategic diversification. 

The Bay of Bengal has the potential to become one of South Asia’s most powerful corridors over the next decade, especially with the ongoing port modernisation, power-grid integration, coastal shipping, refinery expansion, and development of LNG terminals. This brief argues that the regional governments should take steps to leverage the Bay of Bengal as a potential energy security infrastructure. 

Why the Bay of Bengal Matters Now?

Approximately 20% of  global petroleum liquids consumption and around one-fifth of the global LNG trade pass through the Strait of Hormuz. This makes the Strait one of the world’s most important maritime chokepoints. Any prolonged disruption carries the risk of higher freight insurance, tanker rates, and import costs across Asia, contributing to energy shortages and rising prices that are ultimately borne by consumers. This has a cascading effect on energy security and energy prices, especially for countries dependent on imported fuel. In the context of South Asia:

• India imports around 85% of its crude oil, of which 70%  now comes from outside the Strait of Hormuz. Although this has managed to keep the Indian energy sector afloat, it is not the final solution as India is still affected by energy shortage and rising prices, which in turn affects countries like Sri Lanka who depend on countries like India for their oil import. However, South Asia’s energy sector would be more stable if the South Asian nations had diversified their source of energy imports. 
• Bangladesh is heavily dependent on energy imports, with LNG accounting for 45–60% of power generation, much of which is imported, and is almost entirely dependent on Middle East imports for refined oil.
• Sri Lanka is almost entirely dependent on imports for refined oil and petroleum, with the majority of its oil sourced via  India.

The policy should focus more on reducing the risks of dependency than outwardly replacing Gulf energy overnight.

Existing Energy Infrastructure in the Bay of Bengal

India (East Coast)

• Dhamra LNG Terminal (Odisha) – 6.5 million tonnes per annum (mtpa), scalable upward, according to Dhamra LNG, owned by Adani Total Private Limited
• Ennore LNG Terminal (Tamil Nadu) – approximately 5 mtpa
• Paradip Refinery (Odisha) – 15 million metric tonnes per annum
  

The Bay of Bengal has increasingly become central to India’s long-term energy planning. The eastern coast of India not only serves eastern and north-eastern India, but also reduces  pressure on India’s western ports, which are more dependent on the Middle-East shipping lanes. The development of pipelines, industrial corridors, and coastal shipping networks connected to these facilities could transform the East Coast into a balancing hub during periods of maritime volatility.

Bangladesh

• Two operational floating LNG terminals near Moheshkhali with a combined capacity above 1 billion cubic feet per day under favourable conditions.
• Matarbari deep-sea infrastructure under development.

Bangladesh’s energy demand has risen sharply alongside industrial growth, particularly in garments and manufacturing. LNG import capacity near Moheshkhali has therefore become strategically significant. If supported by improved storage, transmission, and power infrastructure, Bangladesh could emerge as a key node linking Bay shipping routes with inland South Asian energy demand over the coming decade.

Sri Lanka

• Colombo and Trincomalee remain strategically placed for bunkering, storage, and transhipment growth.

Sri Lanka’s geographic location places it right in the centre of the Indian Ocean shipping lanes. Colombo already handles substantial transhipment traffic linked to India, while Trincomalee possesses natural harbour advantages and storage potential. If managed prudently, these ports could play a larger role in fuel storage, emergency reserves, and maritime servicing for regional energy flows.

Regional Connectivity

The BBIN (Bangladesh-Bhutan-India-Nepal) framework and BIMSTEC provide an institutional base for energy and logistics cooperation. While implementation may have been  slow, these frameworks remain important as they provide a ready-made diplomatic architecture. Rather than creating new institutions, governments can use existing mechanisms to advance their grid interconnection, simplify fuel movement protocols, and increase maritime coordination in response to future shocks.

Indicative Strategic Impact of Diversification

If Bay-connected LNG, renewable energy imports, coastal refining, and grid trade could meet even 10–15% of South Asia’s future energy demand growth, it would make the region much less vulnerable to disruptions at western chokepoints.

Illustrative Diversification Potential (2030)

Methodological Basis: The matrix uses qualitative scenario analysis derived from open-source data on import dependency, LNG terminal capacity, refinery expansion, regional electricity interconnection, strategic reserve levels, and maritime logistics investments across South Asia. Ratings indicate relative strategic significance rather than precise numerical projections and assume continued policy progress through 2030. 

Policy Recommendations

Bay of Bengal Energy Corridor

India, Bangladesh, and Sri Lanka should come together to establish an energy-security forum focused on LNG logistics, storage, shipping ease, and emergency responses. Presently, regional cooperation is mostly in fragmented bilateral formats, which limits strategic scale. A framework focused on the Bay of Bengal could align port development, tanker scheduling, access to emergency stock, and investment planning. The framework could also provide a standing mechanism to coordinate between different parties during crises such as tanker shortages, insurance spikes, or conflicts on shipping lanes. Over time, this platform could also include private sector stakeholders, refiners, and shipping firms, ensuring that policymaking takes into account the operational realities.

Expand LNG and Storage Capacity

The short-term crisis shocks can be avoided through Floating Storage Regasification Units (FSRUs), strategic petroleum reserves, and shared commercial storage.  India’s strategic reserves currently cover only a limited share of consumption relative to ideal importer benchmarks. It is imperative for South Asian states to increase their LNG reserves through coordinated commercial storage agreements within the region. Bangladesh and Sri Lanka, for example, may find standalone reserves expensive, but shared facilities or leasing arrangements could be more viable. Additional LNG storage units would also reduce vulnerability to market volatility or global crisis situations. Storage policy is often politically unglamorous, yet in energy crises, it becomes the decisive factor between manageable disruption and economic shock.

Link Grids, Not Just Ports

Electricity trade can reduce the stress on fuel imports. India already trades power with Bangladesh, Nepal, and Bhutan. An eastward-expanding integrated grid would reduce the dependence on LNG and diesel over time.

Energy security should not be narrowly understood as oil security alone. Cross-border electricity trade will enable surplus hydropower, solar generation, and seasonal balancing to be allocated more efficiently across the region. If Bangladesh can access more regional electricity, its dependence on imported LNG for power generation may reduce. Over the mid-term, a Bay-focused strategy linking ports with power grids would create a more resilient and decentralised energy ecosystem than solely depending on hydrocarbon imports.

Strategic Use of Trincomalee and Colombo 

Sri Lanka can take the initiative to position itself as a storage, bunkering, and transhipment hub by linking Gulf cargoes with Indian demands through the South Asian routes. Colombo has the potential for logistical control, with Trincomalee offering underutilised strategic depth. A structured regional partnership involving Indian, Sri Lankan, and potentially Japanese or multilateral financing could help the region realise the full potential of these assets. For Sri Lanka this would bring in revenue while also making the island nation strategically stronger, while for its neighbours, this partnership would provide additional storage and rerouting options during crises. In a disrupted Indian Ocean, auxiliary hubs become national-security assets.

Maritime Security Cooperation

Energy corridors require safe sea lanes. BIMSTEC countries should discuss cooperation in terms of using their navies and coast guards to deepen domain awareness and increase anti-smuggling coordination and crisis communications. Maritime threats are not limited to warfare to affect trade; in fact, piracy,  sabotage risks, drone surveillance,  attacks, and insurance risk perceptions could raise costs abruptly. If there is constant sharing of surveillance data, coordinated patrols, and clear communication channels between the navies and coast guards of the region, this would significantly reduce uncertainty in commercial shipping lines. A credible maritime security layer around the Bay’s routes would make diversification efforts economically meaningful rather than purely theoretical.

Strategic Obstacles

However, before getting to the point of policy negotiations, there are a few obstacles that need to be addressed by the South Asian states:

• India-Bangladesh trade frictions – The two nations have often locked horns with disagreements over tariffs, customs procedures, river-water sharing, and border management. These tensions  can spill into larger economic cooperation, thus slowing the momentum on energy and logistics integration within the region.
• Slow customs integration – Inefficient clearance systems, inconsistent regulations, and weak cross-border transport coordination continue to delay cargo movement and increase transaction costs across the region.
• Financing constraints – Major infrastructure, such as LNG terminals, storage facilities, pipelines, and port upgrades, require large-scale long-term capital, which many South Asian states struggle to mobilise consistently.
• Sri Lankan debt overhang – Colombo’s fiscal constraints and post-crisis debt recovery process may limit the speed at which Sri Lanka can invest in strategic port, storage, and energy projects.
• Security competition involving extra-regional actors  – Growing strategic rivalry among the actors within the region can complicate investment decisions, infrastructure partnerships, and maritime coordination in the Bay of Bengal.

Yet these are governance challenges, not structural impossibilities.

Conclusion

The Bay of Bengal is by no measure a substitute for the Gulf. However, it can serve as  a measure to reduce South Asia’s overdependence on westward shipping routes. The contemporary world is rife with repeated maritime shocks, and energy security depends on more than supply contracts alone. Energy security now also needs to include route diversification, storage depth, and regional coordination between actors. For South Asia, the Bay of Bengal can become a point of strategic insurance rather than just a peripheral water.