Middle East turmoil may cause Pakistan’s oil import costs to soar threefold

Pakistan Faces Mounting Economic Pressure Amid Middle East Conflict

Earlier, we highlighted the risk of Pakistan being drawn into the ongoing Middle East conflict due to its Strategic Mutual Defence Agreement (SMDA) with Saudi Arabia, signed in September 2025. This pact stipulates that an attack on one nation is considered an attack on both, which could compel Pakistan to respond if Iran targets Saudi Arabia with missile strikes. Yet, the economic fallout from the crisis may pose an even greater challenge for Pakistan than direct military engagement.

Global Oil Price Surge and Its Impact

The sharp rise in oil prices is already causing significant disruption to the world economy. The International Monetary Fund warns that the combination of escalating oil costs and slowing economic growth echoes the turmoil of the 1970s oil crises and the 2008 Financial Crisis. According to IMF estimates, every 10% increase in oil prices results in a 40 basis point uptick in inflation and a 15 basis point drop in global growth. Since hostilities erupted between the U.S.-Israel and Iran in the Middle East about two weeks ago, Brent crude has surged nearly 50%, surpassing $100 per barrel.

Pakistan’s Heavy Dependence on Fuel Imports

For Pakistan, the situation is especially precarious due to its significant reliance on imported energy. A recent analysis by the Pakistan Institute of Development Economics (PIDE) reveals that each $10 rise in global oil prices adds approximately $1.8 to $2.0 billion to Pakistan’s annual petroleum import expenses. PIDE cautions that if the Strait of Hormuz is closed, oil prices could soar to $150 per barrel, pushing Pakistan’s monthly fuel import bill to between $3.5 and $4.5 billion and potentially driving consumer inflation from 7% up to 17%.

Energy Supply Vulnerabilities

Between July and April of the current fiscal year, Pakistan’s oil imports exceeded $17 billion, averaging about $1.7 billion per month before the latest price increases. Over 80% of the nation’s oil and refined fuel is sourced from abroad, with roughly 80% of crude oil imports transiting the Strait of Hormuz. Additionally, about a quarter of Pakistan’s annual natural gas consumption is imported, mainly as LNG from Qatar. The country’s petroleum reserves cover only 10 to 14 days—far less than India’s 65 to 70 days. The crisis is also expected to drive up shipping insurance and freight costs, putting further strain on foreign currency reserves and widening the current account deficit.

Pakistan’s Response to the Crisis

In response to these mounting threats, Pakistan has taken steps to safeguard its economic and energy interests. The Pakistan Navy initiated Operation Muhafiz-ul-Bahr (“Protector of the Seas”) in March, aiming to secure vital maritime trade routes and ensure the steady flow of essential goods, particularly oil and gas. Naval vessels are now directly escorting merchant ships carrying critical energy supplies. With around 90% of Pakistan’s trade moving by sea, this operation is crucial for national economic stability.

To help manage soaring fuel costs, the government has introduced several austerity measures: a four-day workweek, 50% remote work for public sector employees, temporary school closures, salary waivers for cabinet ministers, pay reductions for parliamentarians, and cuts to non-essential spending.

Strategic Recommendations for Energy Security

PIDE has proposed several strategies to help Pakistan weather the crisis:

• Expand national petroleum reserves to cover 30–60 days of consumption during global energy disruptions.
• Enhance monitoring of fuel stocks and diversify import routes.
• Adopt oil hedging strategies to manage price volatility.
• Develop overland pipelines with neighboring countries and strengthen maritime routes to reduce dependence on the Strait of Hormuz.
• Increase imports of U.S. light sweet crude (WTI) for better pricing and refinery margins.
• Establish new trade corridors, such as the Trans-Afghan route and the Uzbekistan-Afghanistan-Pakistan (UAP) railway, to access Central Asian markets more efficiently.
• Leverage the China-Pakistan Economic Corridor (CPEC) to boost energy security and diversify supply sources.

By pursuing these measures, Pakistan aims to reduce its vulnerability to external shocks and build a more resilient energy infrastructure.

Written by Alex Kimani for Oilprice.com