THE risks to Pakistan’s fragile economic recovery from the US-Israel war on Iran cannot be dismissed. Yet the ultimate scale of the damage will depend largely on how the conflict unfolds in the days and weeks ahead. If the war drags on and energy prices remain elevated, Pakistan could once again find itself facing the kind of macroeconomic stress that has repeatedly disrupted its growth trajectory.

At the centre of these concerns is the country’s vulnerability to global energy markets due to its heavy reliance on imported fuels. Any volatility in global energy prices could hit GDP, slowing an economy that had only recently begun to stabilise after years of turbulence. The consequences of war will not be limited to higher oil prices and supply disruptions. Prolonged conflict could also weaken remittance inflows and dampen export demand as international trade slackens.

Even more worrying are the implications for the external sector. The import bill could swell sharply as petroleum purchases rise, while exports — already down by nearly 8pc during the July-February period — may weaken further as economic growth slows in key markets. At the same time, any deceleration in Gulf economies, which account for over half of Pakistan’s remittance inflows, could produce a negative external shock. Together, these pressures can widen Pakistan’s external imbalance.

What is currently a manageable current account deficit could expand significantly if these trends persist. With only a few months left to the end of the fiscal year, the larger deterioration may well emerge in FY27. The trajectory bears uncomfortable resemblance to the 2022 crisis, when rising global oil and commodity prices pushed the economy to the brink, forcing Pakistan to seek a bailout from the IMF. The consequences for the public would be even more severe and last longer as higher global oil prices feed directly into petrol and electricity tariffs while also triggering a broader wave of price increases through higher transportation and logistics costs.

The stabilisation achieved in FY25, when inflation began to retreat, could prove short-lived. If crude prices approach the peaks witnessed during the Ukraine war, Pakistan risks sliding back into another high-inflation environment from whose impact low- to middle-income households have yet to recover. For an economy that has only recently begun to regain some stability, the stakes are therefore high.

Published in Dawn, March 17th, 2026