If tensions between Iran and the United States escalate, a report warns that Pakistan could face significant economic challenges, particularly related to oil prices. The Dawn editorial highlights that surging oil prices could lead to increased inflation, making it difficult for Pakistan to implement tax cuts or provide relief. Industry sectors may also experience higher input costs, limiting the government’s fiscal flexibility.
Rising oil prices have a direct impact on Pakistan’s economy, with every $10 increase leading to a 0.5–0.6 percentage point rise in inflation, according to experts cited in the editorial. Additionally, a substantial surge in oil prices could result in a significant increase in the country’s current account deficit, potentially undoing recent gains in achieving a surplus.
Former CEO of the Pakistan Business Council, Ehsan Malik, noted that if oil prices were to reach $100, the deficit could expand by $5–$7 billion annually. This scenario could reverse the progress made, as seen in the FY25 current account surplus of $2 billion. Analysts also recalled the economic challenges faced by Pakistan during the Russia–Ukraine conflict, where high oil prices pushed the country towards a sovereign default.
Recent retaliatory actions by Iran targeting oil and gas facilities have raised concerns about potential supply disruptions, leading to further increases in oil prices. Tehran’s reported strikes on Saudi Arabian infrastructure and threats to shipping in the Strait of Hormuz have exacerbated inflation worries and economic instability in the region.
