The adverse economic impact of the ongoing war in the Middle East has begun to be felt across the world, and Pakistan is no exception. The effects are already visible in the form of rising prices of petrol and other essential items of daily use, placing additional pressure on consumers and businesses alike.
A sharp surge in domestic energy prices became inevitable after the United States and Israel launched strikes on Iran, which was followed by Tehran’s response through attacks on US bases in Gulf states and disruptions to maritime activity around the Strait of Hormuz — a strategic passageway that carries nearly one-fifth of global oil supplies.
In these circumstances, the government had little choice but to introduce one of the steepest increases in petrol and high-speed diesel (HSD) prices in recent memory, raising both by Rs55 per litre. As a result, the ex-depot price of petrol jumped from Rs266.17 to Rs321.17 per litre, while the price of HSD increased from Rs280.86 to Rs335.86 per litre.
The rise in fuel prices has had an immediate effect on transportation and logistics across the country. Transport fares have increased by about 20 percent nationwide, affecting goods carriers, intercity buses, railways and airlines alike. Higher freight charges have also pushed up the prices of food items and other essential commodities while simultaneously increasing production costs for the industrial sector.
With international oil prices continuing to move upward, further adjustments in domestic energy prices cannot be ruled out in the coming weeks.
Economists also fear another major economic consequence of the Middle East conflict in the form of a potential decline in remittance inflows. Pakistan had recorded an 11.3 percent increase in remittances during July–February 2026 compared with the same period the previous year. However, any slowdown in remittances from Gulf countries — which account for roughly 50 to 51 percent of total inflows — could reduce foreign exchange reserves and increase Pakistan’s reliance on external borrowing.
This suggests that the negative fallout of the Middle East conflict on Pakistan’s economy could be substantial and may intensify if the conflict continues for a prolonged period.
Since petroleum and petroleum products make up a significant portion of Pakistan’s imports, the country’s trade deficit is also expected to widen further if the war persists. The situation has become more worrying as some major oil suppliers have reportedly halted shipments through the Strait of Hormuz, which has been closed by Iran’s Islamic Revolutionary Guard Corps (IRGC).
Another challenge facing Pakistan is the delayed release of the next tranche under the International Monetary Fund’s (IMF) ongoing USD 7 billion Extended Fund Facility (EFF) programme. According to media reports, the third mandatory review of the programme has been delayed because of the Middle East conflict, as global and country-specific macroeconomic projections prepared by the IMF now require reassessment.
In a press release issued shortly after the conflict began, the IMF stated that it had observed disruptions to trade and economic activity, sharp increases in energy prices and volatility in global financial markets. These developments have been reflected globally and have also affected Pakistan, where exporters have begun urging the government to provide support to ensure that their shipments reach international markets without disruption.
The IMF team also issued a statement following virtual discussions with Pakistani authorities held from February 25 to March 11, noting that while considerable progress had been made in negotiations, discussions would continue in the coming days to fully assess the impact of recent global developments on Pakistan’s economy and the EFF-supported programme.
The IMF acknowledged progress in several areas of programme implementation, including efforts to sustain fiscal consolidation to strengthen public finances, maintain a sufficiently tight monetary policy to keep inflation within the State Bank of Pakistan’s target range, and advance reforms aimed at improving the financial viability of the energy sector.
The statement also noted that particular attention had been given to deepening structural reforms, as the government has emphasized accelerating economic growth while simultaneously strengthening social protection and rebuilding spending on health and education.
The third review of the IMF programme requires several key policy measures, including easing monetary policy through reductions in the policy rate, strict adherence to the principle of full-cost recovery by utility companies and maintaining tight fiscal discipline.
There is growing concern in Pakistan that a failure to reach a staff-level agreement with the IMF, leading to a delay in the release of the next tranche, could create serious balance-of-payments challenges.
Even before the current conflict began, Pakistan’s trade deficit had already widened significantly during the first eight months of the current fiscal year — rising from USD 20.04 billion in July–February 2025 to USD 25.04 billion during the same period this year.
At the same time, remittances are expected to remain under pressure until the end of the conflict, while there is little likelihood that the foreign direct investment pledged by Gulf countries will materialise in the near term.
Given the vulnerability of Pakistan’s economy to fluctuations in international oil prices, economists believe that urgent steps must be taken to reduce the country’s reliance on foreign borrowing.
The federal budget for the current year has earmarked nearly USD 20 billion in external financing, while a large portion of Pakistan’s foreign exchange reserves remains debt-based, including approximately USD 12 billion in annual rollovers from three friendly countries.
In this context, experts stress the need for a renewed national effort to reduce dependence on foreign loans. Such a strategy would require significant fiscal discipline and belt-tightening measures, including a drastic reduction in current government expenditure, which has expanded considerably in recent years.