Escalating tensions in the Middle East could create serious economic challenges for Pakistan, with global oil prices potentially rising to between $120 and $150 per barrel in a worst-case scenario, according to a new report by the Pakistan Institute of Development Economics.
The study warns that any disruption in the Strait of Hormuz could significantly impact Pakistan’s economy. In such a scenario, the country’s inflation rate could surge from the current around 7 percent to as high as 15 to 17 percent.
A sharp increase in global energy prices would also raise Pakistan’s monthly oil import bill to between $3.5 billion and $4.5 billion, placing additional pressure on the country’s external accounts.
According to the report, petroleum products make up nearly 30 percent of Pakistan’s total imports, making the economy particularly vulnerable to fluctuations in international oil prices. Economists estimate that every $10 increase per barrel in global oil prices can add around $1.8 billion to $2 billion to Pakistan’s annual import bill.
The report outlines several possible scenarios if oil prices continue to rise. Under the current estimated price range of $92 to $110 per barrel, inflation could increase by 10 to 15 percent, while the country’s import bill may rise by $8 billion to $10 billion.
In a more severe situation involving a three-month disruption to oil supply routes, inflation could climb to 15 to 18 percent, and the oil import bill may surge by $18 billion to $36 billion, significantly widening Pakistan’s current account deficit.
Pakistan’s heavy reliance on imported energy further increases the risk. The country imports about 80 to 85 percent of its petroleum needs, with most supplies arriving from Gulf countries through the Strait of Hormuz. Any disruption along this route could delay shipments, increase freight and insurance costs, and further expand the trade deficit.
Energy security concerns are also linked to limited domestic reserves. Pakistan currently maintains petroleum stocks sufficient for only 10 to 14 days of consumption, far lower than regional peers such as India, which holds strategic reserves capable of covering around 65 to 70 days of demand.
To reduce these vulnerabilities, the study recommends several urgent steps, including diversifying oil import sources, expanding strategic petroleum reserves, increasing investment in renewable energy, and exploring alternative supply routes to lessen dependence on a single maritime corridor.
