Iran-Israel tensions threaten Pakistan's fragile economic recovery
The world is holding its breath as tensions between Iran and Israel reach a boiling point. What began as a shadow war – fought through covert attacks, cyber strikes, and regional proxies – now teeters on the edge of open warfare.
For many, this may seem like another distant Middle Eastern flashpoint. But for Pakistan and other oil-importing, investment-hungry economies, the potential fallout from a full-scale Iran-Israel war could be immediate, destabilising, and enduring.
Trump to decide on US action in Israel-Iran war within two weeks, White House says
The Strait of Hormuz
Iran has long warned that if it is attacked directly, it would retaliate by closing or disrupting the Strait of Hormuz, through which nearly a fifth of the world's oil and one-third of global LNG passes. If war breaks out and the Islamic Revolutionary Guard Corps acts on this threat, the effect would be seismic.
Oil prices could jump to $120–$130 per barrel, if not higher, within days, according to JP Morgan.
Energy markets would convulse, and strategic reserves would be tapped globally. For Pakistan, where nearly 30% of the import bill is fuel, this would mean an instant blowout of the current account deficit, a weakening rupee, and imported inflation feeding into everything from electricity tariffs to grocery prices.
The current war has the power to reorder global energy, unsettle regional politics, and cast a long shadow over Pakistan's fragile economic recovery
A rise in oil prices would also raise transport costs and production expenses for exporters – particularly in textiles and manufacturing – shrinking competitiveness just when the country is trying to climb out of economic stagnation.
Iran says no nuclear talks under Israeli fire, Trump considers options
US Involvement: The risk of a regional war
Should Israel launch a significant military operation against Iran's nuclear infrastructure, US involvement is almost guaranteed – if not militarily, then through security and diplomatic cover.
Iran could retaliate through its extensive network of regional allies: Hezbollah in Lebanon, armed groups in Syria and Iraq, and the Houthis in Yemen. In response, Israel may strike across multiple fronts. The Gulf, already skittish, could be drawn into this widening circle of conflict.
This would be a pan-regional war, not a bilateral spat – and global markets would respond accordingly.
For Pakistani businesses and policymakers, this isn't just an oil story – it's about the collapse of confidence.
Equity markets across the region would take a hit, foreign direct investment (FDI) flows into emerging economies would pause, and the risk premium for countries like Pakistan – already contending with political instability and the International Monetary Fund (IMF) obligations – would rise further. That means higher borrowing costs, capital flight, and declining investor appetite for anything deemed 'exposed to the region'.
Trade corridors under threat
Even beyond the Strait, Iran serves as a critical trade conduit to Central Asia and Turkey.
With road and rail links passing through its territory, Pakistan has in recent years viewed Iran as a potential bridge to diversify trade routes. If Iran becomes a war zone or faces renewed and expanded US sanctions, these overland corridors could shut down indefinitely. The Pakistan-Iran-Turkey freight corridor, a pillar of Pakistan's regional trade ambitions, would collapse.
And as regional tensions rise, other initiatives – such as Iran's role in China's Belt and Road – could also stall, indirectly affecting Pakistan's own the China–Pakistan Economic Corridor (CPEC) trajectory.
The perils of regime change
Some voices in Western capitals quietly suggest that an Iran–Israel war could trigger regime change in Tehran. But regime change rarely brings instant democracy or economic liberalism. More often, it brings chaos, uncertainty, and power vacuums.
In Iran's case, a collapsed regime could unleash internal civil strife, embolden separatist movements, and leave critical oil and gas infrastructure vulnerable.
A successor regime – military, clerical, or revolutionary – might be more aggressive, not less. And either way, it would take years to stabilise one of the region's largest energy exporters, further compounding oil market disruption and regional instability.
Implications for Pakistan
Pakistan has always maintained a careful balancing act between Iran, the Gulf Arab states, and the West. A full-scale Iran–Israel war would make that balance nearly impossible to maintain.
Moreover, if the conflict spreads to the Gulf, the implications for Pakistan's diaspora workers in Saudi Arabia, the UAE, and beyond – who send home billions in remittances – could be severe. Even minor disruptions to Gulf economies or airline connectivity would affect the lifeblood of Pakistan's foreign exchange.
The Iran–Israel confrontation is no longer a question of if – but how far it spreads. For Pakistan and many in the Global South, the imperative now is economic preparedness: building energy buffers, accelerating regional trade alternatives, and strengthening diplomatic channels that could help de-escalate tensions.
The current war has the power to reorder global energy, unsettle regional politics, and cast a long shadow over Pakistan's fragile economic recovery.
The article does not necessarily reflect the opinion of Business Recorder or its owners
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Express Tribune
26 minutes ago
- Express Tribune
Omar warns of oil shock from conflict
Opposition Leader in the National Assembly Omar Ayub Khan addressing a press conference in Islamabad on March 11, 2024. SCREENGRAB Leader of the Opposition in the National Assembly Omar Ayub Khan has warned that the ongoing Iran-Israel war will shake the global economy as Iran and Kuwait hold the world's largest oil wells. Speaking at a press conference, the PTI leader described Israel's onslaught on Iran as a terrorist attack, lamenting that the Iranian leadership was attacked that plays an important role. He said the world consumes 104 million barrels of oil per day. If anything happens in the aftermath of the conflict, strategic reserves would last only about 12 days.
Express Tribune
42 minutes ago
- Express Tribune
Senate session turns critical over budget
The federal budget for fiscal year 2025-26 came under fire in the Senate on Friday, with lawmakers from both treasury and opposition benches denouncing it. Issues affecting minority communities in Sindh and the ongoing situation in Balochistan also featured prominently in the session. The house, chaired by Deputy Chairman Syedal Khan Nasir, briefly witnessed a boycott by opposition members due to the absence of any minister. Debate on the budget resumed after the arrival of Law Minister Azam Nazeer Tarar and Parliamentary Affairs Minister Tariq Chaudhry. Senator Dinesh Kumar highlighted the alleged kidnapping of three girls and a boy from the minority community in Sindh. "It is being heard that these girls were being forcibly converted," he told the house, urging the Sindh police chief to take immediate notice of the incident. Responding, the deputy chairman directed the Sindh chief secretary and inspector general of police to submit a report and further instructed that the officers meet Senator Kumar to address his concerns. Pakistan Peoples Party (PPP) Senator Waqar Mehdi informed the house that "the girls had been recovered" and would be presented before the relevant court in Karachi. He assured that "there would be no discrimination against minorities". Maulana Attaur Rehman endorsed Senator Kumar's concerns and called for accountability from the Sindh government. Senator Raja Nasir Abbas added: "There is no compulsion in religion and kidnapping of girls is wrong." Senator Khalil Tahir Sindhu pointed out that the budget contained no allocations for minorities or interfaith harmony. The deputy chairman responded by advising him to take up the matter within his own party, since he belonged to the ruling coalition. Senator Khaleda Ateeb raised the issue of a tragic dumper accident in Karachi that claimed the lives of a woman and her daughter. "Why is the dumper mafia so strong in Karachi?" she asked. Senator Mehdi replied that the provincial government was making efforts to enforce traffic laws. Senator Jan Muhammad Buledi urged the government to play a greater role in efforts to stop the Iran-Israel conflict. He warned that "Israel wanted to change the government in Iran and bring its puppets there". He also criticised the budget for ignoring Balochistan, saying: "Balochistan cannot be ignored. We should have had a plan to fix the situation in Balochistan. Take Balochistan seriously." In response, Law Minister Tarar reiterated that Balochistan was a high priority for the government and Prime Minister Shehbaz Sharif.
Express Tribune
2 hours ago
- Express Tribune
Pakistan nominates Trump for 2026 Nobel Peace Prize
Listen to article The government has formally decided to recommend US President Donald Trump for the 2026 Nobel Peace Prize, praising his decisive diplomatic intervention and leadership during the recent Pakistan-India standoff, according to an official statement released Friday. Islamabad cited what it called 'unprovoked and unlawful' Indian aggression against Pakistan, resulting in civilian casualties, including women, children and the elderly. 'This constituted a grave violation of Pakistan's sovereignty and territorial integrity,' the statement added. In response, Pakistan launched Operation Bunyanum Marsoos, described as a measured and precise military action aimed at re-establishing deterrence while avoiding civilian harm. The operation, the statement said, was in 'exercise of the fundamental right of self-defence'. Read More: Operation Bunyan-un-Marsoos: Pakistan counters India's Operation Sindoor The intervention of President Trump, coupled with robust engagement by US Secretary of State Marco Rubio, is credited with facilitating a ceasefire agreement on May 10, effectively preventing a wider conflict between the two nuclear-armed nations, the statement read. Trump's 'strategic foresight and stellar statesmanship' helped de-escalate the crisis through vigorous diplomatic engagement with both Islamabad and New Delhi. 'His intervention secured a ceasefire and averted a broader conflict between the two nuclear states,' the statement added, calling the move a watershed moment for regional peace. Government of Pakistan Recommends President Donald J. Trump for 2026 Nobel Peace Prize The Government of Pakistan has decided to formally recommend President Donald J. Trump for the 2026 Nobel Peace Prize, in recognition of his decisive diplomatic intervention and pivotal… — Government of Pakistan (@GovtofPakistan) June 20, 2025 The statement further said the government acknowledges and greatly admires Trump's offers to mediate the long-standing Jammu and Kashmir dispute—a flashpoint that continues to destabilise South Asia. 'Durable peace in South Asia will remain elusive until UN Security Council resolutions on Jammu and Kashmir are implemented,' it stated. In formally backing Trump's Nobel nomination, the statement said: 'President Trump's leadership during the 2025 Pakistan–India crisis manifestly showcases the continuation of his legacy of pragmatic diplomacy and effective peace-building.' Also Read: Shehbaz hails Trump as 'man of peace' The United States is said to have leveraged diplomatic and economic pressure—particularly trade leverage—to expedite de-escalation. The statement concluded by expressing hope that Trump's diplomatic efforts would further promote regional and global stability, 'particularly amid ongoing crises in Gaza and the escalating situation in Iran.' Pakistan thus becomes one of the first countries to put forward Trump's name for the prestigious Nobel accolade, typically reserved for individuals with demonstrable contributions to peace and conflict prevention.
