Pakistan’s fragile economic recovery is once again under threat as the escalating confrontation involving the United States, Israel, and Iran casts a long shadow over global markets. The extent of the damage will depend on how the conflict evolves, but the risks are already evident. For a country heavily reliant on imported fuels, any prolonged disruption in energy supplies or sustained increase in oil prices could quickly unravel the modest gains achieved in recent months.

The vulnerability of Pakistan’s economy to external shocks is not new. For decades, dependence on imported petroleum has left the country exposed to volatility in international markets. Whenever global oil prices surge, the impact is felt immediately in the form of higher transport costs, rising electricity tariffs, and inflationary pressures that disproportionately burden low- and middle-income households. The current crisis threatens to repeat this cycle, with the potential to push inflation back into double digits and erode the stability achieved in FY25.

Beyond energy costs, the broader external sector faces significant challenges. Pakistan’s import bill could swell sharply as petroleum purchases rise, while exports—already down by nearly eight percent during the July–February period—may weaken further if global demand slows. Remittances, which provide a crucial lifeline for the economy, are also at risk. Gulf economies account for more than half of Pakistan’s remittance inflows, and any slowdown in those countries due to regional instability could deliver a negative shock to Pakistan’s balance of payments.

The danger is that what is currently a manageable current account deficit could expand rapidly, creating pressures reminiscent of the 2022 crisis when soaring global commodity prices forced Pakistan to seek emergency support from the IMF. The parallels are troubling: rising oil prices, weakening exports, and declining remittances all converge to widen external imbalances, leaving policymakers with limited options.

The consequences for ordinary citizens would be severe. Higher global oil prices feed directly into petrol and electricity tariffs, while also triggering a broader wave of price increases through higher transportation and logistics costs. For households already struggling to recover from the inflationary surge of recent years, another round of price hikes could prove devastating.

Pakistan’s policymakers must therefore prepare for the possibility of prolonged instability in global energy markets. While the country has made progress in diversifying its energy mix and expanding domestic generation capacity, imported fuels remain a critical component of supply. The government will need to balance fiscal discipline with targeted relief measures to shield vulnerable groups from the worst effects of inflation. At the same time, efforts to strengthen exports, attract investment, and sustain remittance flows must be intensified to offset external pressures.
The unfolding conflict in the Middle East is a reminder of how interconnected Pakistan’s economy is with global events. Stability at home cannot be secured in isolation from turbulence abroad. The challenge for Pakistan is to navigate this uncertainty with foresight and resilience, ensuring that the hard-won gains of recent months are not lost to forces beyond its control.