Growing tensions in the Gulf region and the Strait of Hormuz could significantly impact Pakistan’s economy, according to a new report by the Pakistan Institute of Development Economics (PIDE).
The study warns that rising global oil prices could sharply increase inflation and the country’s import bill.
The Pakistan Institute of Development Economics (PIDE) has identified several economic risks for Pakistan stemming from rising tensions in the Gulf.
According to the report, instability in the Strait of Hormuz -- a crucial global oil shipping route -- could push international oil prices significantly higher, placing additional pressure on Pakistan’s already fragile economy.
Oil prices could reach $120–$150 per barrel
The report warns that in a worst-case scenario, global oil prices could rise to between $120 and $150 per barrel. Such a sharp increase in energy costs would have a direct impact on Pakistan, which heavily relies on imported petroleum products.
If oil prices spike to the projected levels, the report estimates that inflation in Pakistan could rise from around 7% to between 15 and 17%.
Higher energy costs would likely drive up transportation, electricity and production costs, pushing overall consumer prices upward.
Oil price increases could expand import bill
The report also highlights the impact of rising oil prices on Pakistan’s import bill.
According to PIDE, every $10 increase in global oil prices could add approximately $1.8 to $2 billion to Pakistan’s annual import bill.
Pakistan’s heavy reliance on imported fuel further increases its vulnerability. The report notes that around 30% of Pakistan’s total imports consist of petroleum products, making energy price fluctuations a major economic concern.
Monthly oil import bill could reach $4.5bn
Under the worst-case scenario outlined in the report, Pakistan’s monthly oil import bill could rise to between $3.5 billion and $4.5 billion.
Such a surge in import costs could place additional pressure on the country’s foreign exchange reserves and fiscal stability.
The PIDE report emphasizes that Pakistan imports 80 to 85% of its oil requirements. This heavy dependence on foreign energy supplies makes the country particularly vulnerable to global oil price volatility and geopolitical tensions.
Limited oil reserves increase vulnerability
The report also highlights a critical energy security concern.
Pakistan currently maintains oil reserves sufficient for only 10 to 14 days, leaving little buffer in case of major disruptions in global supply chains.
To mitigate these risks, the report recommends several long-term policy measures. These include diversifying oil suppliers, maintaining larger strategic petroleum reserves, and increasing investment in renewable energy sources to reduce reliance on imported fuel.
