The escalating conflict between the United States and Iran has triggered far-reaching economic consequences across the globe. For Pakistan, a country already grappling with a host of economic challenges, the war poses a serious threat to stability, growth, and fiscal sustainability.
As geopolitical tensions intensify in the Middle East, Pakistan finds itself increasingly exposed to multiple economic shocks that could derail its fragile recovery. The country imports nearly 80 percent of its oil, much of it from Gulf suppliers. With disruptions in the Strait of Hormuz, critical shipping routes have been affected, leading to a sharp surge in fuel prices. Transportation costs, electricity generation, and industrial production are all being impacted, placing additional pressure on both households and businesses.
At the core of the crisis lies a steep rise in global energy prices. Pakistan, being a net importer of oil and gas, remains highly vulnerable to fluctuations in international markets. Since the outbreak of hostilities in late February 2026, oil prices have surged significantly—by as much as 50 to 80 percent in some estimates—driven by fears of supply disruptions and prolonged instability in the Gulf region. The situation has been further exacerbated by disruptions in the Strait of Hormuz, a vital maritime corridor through which nearly 20 percent of the world’s oil supply passes.
For Pakistan, this directly translates into a rapidly expanding import bill. Economic estimates suggest that every $10 increase in oil prices adds approximately $1.5 to $2 billion to the country’s annual import costs. With oil prices remaining well above pre-conflict levels, Pakistan’s already strained foreign exchange reserves are coming under severe pressure. This widening external deficit heightens the risk of another balance-of-payments crisis, potentially forcing the country to seek additional international financial assistance.
The inflationary impact of the conflict is equally concerning. Rising fuel prices have a cascading effect across nearly every sector of the economy, including transportation, electricity, agriculture, and manufacturing. Recent increases in petrol and diesel prices in Pakistan—rising by over 60 percent since the conflict began—are already pushing inflation upward. For ordinary citizens, this translates into a higher cost of living, reduced purchasing power, and increasing financial hardship.
The ripple effects extend well beyond energy. Global supply chain disruptions caused by the conflict have led to rising prices of essential commodities, including fertilisers and food items. Fertiliser prices, in particular, have surged due to higher energy costs and supply constraints, posing a serious threat to agricultural productivity worldwide. For Pakistan, an agrarian economy, these developments could result in higher food prices and potential shortages, further aggravating inflation and food insecurity.
Another major concern is the potential disruption of remittances. Millions of Pakistanis are employed in Gulf countries, and their remittances constitute a vital pillar of the national economy. Any escalation in the conflict that destabilises Gulf economies or affects employment opportunities could reduce these inflows. A decline in remittances would weaken Pakistan’s external account and deprive millions of households of a crucial source of income.
Trade and exports are also at risk. The Middle East remains an important market for Pakistani goods, and prolonged conflict could disrupt trade routes and dampen demand. Additionally, rising shipping and insurance costs due to regional instability may further erode the competitiveness of Pakistani exports in global markets.
The war is also creating fiscal challenges for the government. To manage rising energy costs, authorities have been compelled to adjust fuel prices and taxes, including increases in the petroleum development levy. While such measures may help meet revenue targets, they also place an additional burden on consumers and businesses, potentially slowing economic activity and growth.
Investor confidence is another area of concern. Heightened political and economic uncertainty tends to deter both domestic and foreign investment. Pakistan, which is already struggling to attract foreign direct investment, may find it even more difficult to secure capital inflows in an increasingly volatile global environment. As uncertainty rises, businesses may delay expansion plans, leading to slower job creation and broader economic stagnation.
The overall macroeconomic outlook is becoming increasingly challenging. Analysts warn that Pakistan could face a scenario of stagflation—a combination of high inflation and low economic growth—if the conflict persists. Such a situation would complicate policymaking, as efforts to control inflation could further suppress growth, and vice versa.
Despite these mounting challenges, there are policy options available to mitigate the impact. In the short term, the government must prioritise managing energy supplies and protecting vulnerable segments of society through targeted subsidies and social protection programmes. Diplomatic efforts to secure concessional oil imports from friendly countries could also provide some relief.
In the longer term, however, the crisis highlights the urgent need for structural reforms. Reducing dependence on imported energy through investment in renewable resources, diversifying exports, and strengthening domestic industries are critical steps toward building economic resilience. As experts note, Pakistan’s heavy reliance on external factors—energy imports, remittances, and a narrow export base—makes it particularly vulnerable to global shocks.
Ultimately, the US–Iran conflict has exposed deep structural weaknesses in Pakistan’s economy. While the country cannot influence geopolitical developments, it can take proactive measures to reduce its vulnerability. The current crisis serves as a stark reminder that Pakistan’s economic stability is closely tied to global events—and that resilience must be built before the next shock arrives.