US-Israel War on Iran Poses Risks to Pakistan’s Economic Recovery

Pakistan’s economic recovery is at risk due to the US-Israel war on Iran. The ultimate scale of damage will depend largely on how the conflict unfolds and if energy prices remain elevated. Pakistan’s vulnerability to global energy markets due to heavy reliance on imported fuels could lead to macroeconomic stress.

The country’s import bill could swell sharply as petroleum purchases rise, while exports may weaken further as economic growth slows in key markets. Deceleration in Gulf economies, which account for over half of Pakistan’s remittance inflows, could produce a negative external shock, widening the external imbalance.

A manageable current account deficit could expand significantly if these trends persist. The larger deterioration may emerge in FY27, potentially leading to severe consequences and prolonged impact on the public due to higher global oil prices affecting petrol and electricity tariffs and triggering broader price increases through higher transportation and logistics costs.