Pakistan is facing a serious external economic shock arising from the US-Israel war on Iran, and its vulnerability appears greater than that of many other affected countries. The conflict has unsettled the Middle East, disrupted energy supply channels, and caused a sharp increase in global oil and gas prices. For Pakistan, which relies heavily on imported energy and remittances from the region, the consequences are immediate and deeply troubling. The finance minister’s remarks before a Senate panel underscore the gravity of the situation. Liquefied natural gas cargoes that had cost roughly $25 million only weeks earlier are now said to be exceeding $100 million after Qatar declared force majeure following a production shutdown. Oil prices have also become highly volatile, compelling the government to repeatedly evaluate the possible effects on the budget, inflation, revenues, the current account, and remittance inflows should the conflict continue, even as higher energy costs are being transferred to consumers.
This crisis has emerged at a highly sensitive point in Pakistan’s economic journey. It threatens the limited macroeconomic stability that has been achieved over the past two years. The country’s modest foreign exchange reserves may once again come under strain, while prolonged instability could widen both the current account deficit and the fiscal deficit. Such a development would expose the weakness of the recovery that has been achieved with considerable economic and social sacrifice. This outcome is hardly unexpected, given that the stability in question rests on fragile foundations. Economic growth remains weak, and household purchasing power has been eroded by inflation and repeated increases in energy prices. The improvement in the external account has depended largely on strong remittance inflows and debt rollovers rather than on deep structural strength. For much of the population, stabilisation has translated not into meaningful recovery, but into prolonged economic stagnation.
Although these measures have helped the country avoid another balance-of-payments crisis, they have not created a durable economic base. The more fundamental reforms needed in governance, policy, and productivity remain absent. Likewise, hopes that major investment and financial support from certain Gulf countries and China would stimulate growth and expand infrastructure have yet to be realised. In these circumstances, the government’s immediate room for manoeuvre is narrow. It has no control over international energy markets or the course of the conflict itself. What it can and must do, however, is manage the domestic consequences prudently, preserving macroeconomic stability while making every possible effort to protect vulnerable segments of society from the worst effects of the crisis.
