Pakistan, though not directly involved in the Middle East tensions, faces high vulnerability to global shocks due to its fragile economic structure, a recent report highlighted. Geopolitical conflicts impact global financial markets initially, but their deeper and lasting effects are felt domestically, especially in economies like Pakistan heavily reliant on external factors. Factors like rising energy prices, tight global financial conditions, and currency pressures act as significant economic triggers for Pakistan, leading to higher import bills, inflation, and weakened exchange rates.
The report emphasized that Pakistan, which imports 80% of its oil needs, faces an estimated $18 billion petroleum import bill in FY23. A sustained $10 per barrel increase in global oil prices could annually add up to $1.5 billion to import costs, intensifying pressure on the country’s limited foreign exchange reserves. Such shocks not only devalue the Pakistani rupee but also drive inflation, particularly through increased fuel and electricity prices, which can contribute to political instability.
Pakistan’s economy has been repeatedly impacted by global volatility over the past decade, driven by fluctuations in oil prices, interest rates, and capital flows. The report highlighted the need for energy diversification, pointing out that despite substantial renewable energy potential, renewables make up only about 6% of Pakistan’s energy mix. Additionally, the lack of adequate strategic petroleum reserves poses a critical gap, with the current reserves covering only a few weeks of consumption. Expanding reserves to cover 30–45 days could offer vital buffer time during global supply disruptions.
The report also underscored the risks associated with Pakistan’s heavy reliance on dollar-denominated trade.
