Confronted by escalating tensions in the Middle East and repeated disruptions to shipping through the Strait of Hormuz, Pakistan has begun taking concrete steps to establish its first-ever Strategic Petroleum Reserves (SPR).
The country currently operates largely on a fragile, just-in-time commercial inventory model, with petroleum stocks providing only limited protection against prolonged supply disruptions. Under the proposed strategy, the government plans to establish a 45-day emergency oil buffer in the first phase, with a longer- term objective of expanding reserve capacity to 90 days.
These stocks could be requisitioned by the state during a national supply emergency. As a longer- term strategic initiative, Islamabad is promoting the development of a Pakistan Maritime Energy City at Gwadar Port. Gulf countries, including Saudi Arabia and Kuwait, are being invited to establish and maintain strategic crude-oil reserves there. Such an arrangement could allow Gulf producers to store oil outside the immediate conflict zone while giving Pakistan a right of first purchase in an emergency.
Islamabad is simultaneously seeking financial protection against the immediate impact of energy disruptions. It has reportedly formally requested a $6.7 billion deferred-payment oil facility from Saudi Arabia on highly concessional terms: an interest rate of one per cent, a 15-year repayment period and a five-year grace period.
The immediate challenge is to survive the current crisis without allowing higher energy costs to derail macroeconomic stabilisation
The proposal would represent a significant improvement over the $1.2bn facility agreed in February 2025 at an interest rate of 6pc, which expired in April.
The request comes as renewed hostilities between Iran and the United States have pushed Brent crude prices sharply higher, increasing risks to Pakistan’s energy and food security. Sustained high oil prices could put fresh pressure on foreign exchange reserves and widen the import bill.
That is why Islamabad is also seeking to restructure external debt repayments, including obligations linked to Chinese energy projects, to reduce the risk of requiring another International Monetary Fund (IMF) programme after the current arrangement expires next year.
The broader strategic relationship with Saudi Arabia has meanwhile deepened considerably. Since the signing of the Strategic Mutual Defence Agreement in September 2025, Saudi Arabia has emerged as one of Pakistan’s most important bilateral financial partners, with substantial deposits and other financial support strengthening the relationship.
When the United States and Iran agreed to a temporary ceasefire in mid-June, reopening the Strait of Hormuz, Pakistan breathed a collective sigh of relief. That relief, however, proved short-lived. The renewed US naval blockade has once again plunged the region into uncertainty.
As analysts had warned, reopening a vital shipping lane does not automatically restore lasting stability.
A renewed closure compounds the damage inflicted by earlier disruptions.
Energy costs are sure to rise; supply chains face renewed pressure, and investor confidence — already weakened — is likely to suffer further.
The recurring crisis has laid bare Pakistan’s structural weaknesses: excessive dependence on imported energy, a narrow export base and inadequate fiscal and strategic buffers.
No temporary diplomatic breakthrough can insulate the country from the economic whiplash of repeated geopolitical shocks.
The immediate challenge is to protect the economy from the current crisis. The more important challenge is to use it as a catalyst for long-delayed reforms. Pakistan must reduce its dependence on a single maritime corridor, build strategic reserves and strengthen its domestic energy and financial resilience.
Without such reforms, every new crisis in the Middle East will continue to become a crisis for Pakistan.
The most critical channel of impact remains energy security. Pakistan is heavily dependent on Gulf energy supplies, making the Strait of Hormuz a vital artery for its economy.
Disruption to shipping through the waterway has therefore exposed the country to severe risks of shortages, higher import costs and prolonged energy insecurity. The crisis has also disrupted LNG supplies.
The energy shock is likely to feed into inflationary pressures. The fiscal dilemma is equally acute. The government must either pass higher energy costs on to consumers or absorb part of the shock through subsidies and other relief measures. The first option risks intensifying inflation and public discontent; the second could undermine fiscal consolidation under the IMF programme.
Higher oil and gas prices increase the import bill, while disruptions to shipping raise freight and insurance costs. Pakistan’s already weak trade position therefore leaves it particularly exposed to an extended crisis. Remittances, however, have so far provided an important counterweight. Yet remittances cannot be regarded as immune to a prolonged regional crisis, particularly in a situation where imports ($69.76bn) almost entirely devour cumulative forex earnings from exports ($30.14bn and remittances ($41.6bn).
Besides, we must not forget that a sustained downturn in the Gulf economies, disruption to overseas employment or the return of Pakistani workers could eventually weaken remittances.
Pakistan is not standing still, though. While Saudi Arabia has explored alternative supply routes through Yanbu on the Red Sea, Islamabad has also considered ways of diversifying its sources of crude and petroleum products.
Such alternatives, however, cannot immediately replace the scale, cost advantages and established logistics of the Gulf supplies moving through the Strait of Hormuz.
The immediate challenge is to survive the current crisis without allowing higher energy costs to derail macroeconomic stabilisation. The longer-term challenge is far more fundamental: Pakistan must build a more resilient economy by expanding domestic energy capacity, diversifying import routes and export markets, strengthening strategic reserves and creating larger fiscal and foreign- exchange buffers.
Published in Dawn, The Business and Finance Weekly, July 20th, 2026
