The persisting Israel-Iran conflict has provoked a rapid climb in global oil prices, posing serious risks to Pakistan’s fragile trade and fiscal stability, as per a recent report by Ismail Iqbal Securities, a leading brokerage house.
The crude oil prices have surged significantly, reflecting fears of supply disruption from one of the world’s most vital energy corridors. On June 19, international benchmarks such as WTI, Brent, and Arab Light were trading around $76–77 per barrel, a marked increase from early June’s levels of $60–63 per barrel.
The report has revealed the risk premium now being priced into the market. Iran, the 3rd-largest oil producer within OPEC, presently yielding around 3.3 million barrels per day. Adding to the concern is the strategic Strait of Hormuz, a narrow but highly important maritime route through which 18–21 million barrels of oil pass daily.
Any potential blockade or disruption in this region could highly pose various impacts to global energy flows and economies like Pakistan that are depending heavily on oil imports.
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Heavy Reliance on Oil Imports
Pakistan is particularly vulnerable to such shocks. During the first 11 months of FY25, the country imported $14.6 billion worth of petroleum products, making up 27% of the total $53.5 billion import bill. This dependence on imported energy means that even small changes in oil prices can have outsized effects on Pakistan’s external balance.
The brokerage noted that a sustained $5 per unit increase in oil prices could inflate Pakistan’s annual petroleum import bill by almost $1 billion. While the country has benefited from a current account surplus of $1.8 billion, highly indebted to robust remittances, this cushion is limited and could quickly erode if oil prices remain mounted.
Uncertain Economic Outlook
The conflict’s evolution in the Middle East has become a critical variable in Pakistan’s short-term economic health. Rising energy costs not only threaten to widen the trade deficit but could also lead to higher inflation and fiscal stress, complicating policymaking for an economy already navigating structural weaknesses.