The Gulf is on fire, and Pakistan’s economy is in the line of fire. With tensions escalating between the U.S. and Iran, the world is holding its breath—and Pakistan’s economic stability hangs in the balance. But here’s where it gets even more alarming: oil, the lifeblood of global economies, could become Pakistan’s Achilles’ heel. Even if the conflict doesn’t spiral into a full-blown war, the mere specter of heightened regional risk is enough to send shockwaves through financial markets. And this is the part most people miss: Pakistan’s economy is precariously tethered to oil prices, with every $10 increase threatening to balloon its current account deficit by $1.5–$2 billion. Could this be the tipping point that derails Pakistan’s fragile recovery?
Let’s break it down. Brent crude, the global oil benchmark, has already surged nearly 19% this year, hovering around $72.5 per barrel as of Friday. But whispers of it hitting $100 are growing louder. For Pakistan, this isn’t just a number—it’s a nightmare. Former CEO of the Pakistan Business Council, Ehsan Malik, warns that if prices climb to $100, the deficit could expand by a staggering $5–$7 billion annually. This could erase the hard-won $2 billion current account surplus Pakistan achieved in FY25. Is this the beginning of another economic crisis?
The stakes are higher than ever. Iran, though a smaller player compared to the U.S. or Saudi Arabia, produces 3–3.5 million barrels of oil daily, exporting 1–1.5 million. Even a minor disruption—say, a loss of 1 million barrels—could tighten global supplies and send prices soaring. And then there’s the Strait of Hormuz, the narrow chokepoint through which 20% of the world’s oil passes. Iran has long threatened to block this vital waterway during conflicts, and reports suggest its Revolutionary Guards have already warned ships against passage. What if Hormuz shuts down? Could this be the spark that ignites a global oil crisis?
The ripple effects are already here. Petrol prices in Canada jumped 10–15 cents per litre over the weekend, a stark reminder of how quickly things can spiral. Pakistan, still reeling from the economic fallout of the Russia-Ukraine war, knows this all too well. In 2022–23, Brent crude prices soared to $100–$125, pushing Pakistan to the brink of sovereign default. The rupee plummeted, inflation skyrocketed, and the country’s import bill ballooned. History seems to be repeating itself—but will Pakistan survive this time?
What’s different now is the lack of a safety net. During the Russia-Ukraine crisis, Pakistan could still source oil from Russia, albeit at a discount. But with the U.S. tightening sanctions on Russian supplies and pressuring India to stop imports, those discounted streams are drying up. If Iranian oil is disrupted too, crude prices could easily breach the $100 mark. Are we on the cusp of a perfect storm?
The signs of strain are everywhere. Saudi Aramco has reportedly withheld March cargo allocations to a Pakistani refinery, citing market volatility. Marine insurers are reconsidering policies in the Middle East, and global crude trade uncertainty is making it harder to secure shipments. Add to this the assassination of Iran’s Supreme Leader Ayatollah Khamenei, and the situation becomes even more volatile. Is Pakistan’s economy about to be collateral damage in a geopolitical showdown?
Oil’s impact isn’t just direct—it’s a multiplier. Edible oil prices, for instance, which Pakistan imported $3.7 billion worth in FY25, are indirectly tied to crude markets. Every $10 increase in oil prices pushes Pakistan’s inflation up by 0.5–0.6 percentage points, according to Waqas Ghani of JS Global Capital. Higher inflation means no policy rate cuts, higher input costs for industries, and weaker exports. Could this be the final blow to Pakistan’s struggling manufacturing sector?
The IMF, currently in talks with Pakistan, was considering tax relief in the upcoming budget. But with global uncertainty looming, that seems like a distant dream. Foreign direct investment, already scarce, is likely to slow further. M Abdul Aleem of the Overseas Investors Chamber of Commerce warns that even projects like Reko Diq are at risk. Is Pakistan’s economic recovery about to hit a brick wall?
Equity markets are already feeling the heat. Pakistan’s manufacturing sectors, heavily reliant on imported raw materials, face soaring production costs. Cement, for example, depends on coal and petcoke, whose prices rise with oil. Profit margins are shrinking, and corporate earnings are under threat. Investors, already risk-averse, are pulling out, with foreign investors leading the exodus. Could the Pakistan Stock Exchange be headed for a freefall?
Gold, however, is the new safe haven. Local gold prices jumped Rs10,000 per tola on Saturday, and international prices are expected to surge by $200–$300 per ounce. Is this the time to bet on gold?
Even retail is feeling the pinch. Ramazan, a peak shopping season, is seeing slower footfall as consumers grow cautious. Asfandyar Farrukh of the Chainstore Association of Pakistan notes that while shoppers may adjust their behavior—shopping earlier or spreading out visits—overall footfall could drop by 20–25%. Will Eid shopping lose its sparkle this year?
The bigger threat, however, is rising fuel prices. If oil surges, household spending will take a direct hit. Could this be the final straw for Pakistan’s middle class?
So, what’s the way out? Much depends on de-escalation. Domestic politics in the U.S., with midterm elections looming in 2026, may force a retreat. Donald Trump, facing pressure from his MAGA base, has hinted at “off-ramps” from the conflict. Iran, too, has historically been pragmatic, opting for face-saving measures over all-out war. Will cooler heads prevail, or are we headed for economic chaos?
For Pakistan, the difference between escalation and restraint is the difference between stability and disaster. The world is watching—and so are we. What do you think? Is Pakistan’s economy on the brink, or will it weather the storm? Share your thoughts in the comments below.
