Karachi – Pakistan is experiencing the initial economic fallout from the ongoing conflict in the Middle East, despite not being a participant. The government has already increased oil prices, even as higher-cost oil remains at sea, with current 28-day stocks being sold at prices not yet reflected at the consumer level.
Economic Impacts
The price of oil and diesel jumped by Rs55 per litre, disappointing trade and business people and raising concerns among citizens about the broader economic consequences. Syed Shakil, a textile industry worker, stated, “The easiest way to extract money is to bomb the common citizens and destroy the already ailing economy.”
Industry representatives anticipate several negative impacts, including unexpected high inflation, increased interest rates, a larger fiscal gap, a wider current account deficit, exchange rate imbalances and increased federal government debt due to rising spending.
Amir Aziz, an exporter of textile products to EU countries, noted that while exports to Europe are not currently hindered, shipping costs have already increased. He explained that buyers are likely to demand lower prices to offset these increased shipping charges.
Financial sector experts are concerned that high inflation could escalate government spending and distort fiscal gap targets for FY26. The government’s domestic debt increased by Rs5.734tr from January 2025 to January 2026, reaching Rs55.978tr.
Regional Comparisons and Future Outlook
In comparison, India has maintained stable petrol and diesel prices despite global spikes, though LPG prices were increased. The Indian government has so far managed high import costs for crude.
A financial expert suggested that the government may require external inflows in the coming weeks and months if the conflict continues, as exports to the Middle East could decline and remittances may fall. While the State Bank’s foreign exchange reserves have been rising, reaching $16.3bn, economic trouble in the Middle East could lead to a decline.
Frequently Asked Questions
What impact has the conflict had on oil prices in Pakistan?
The government has raised oil and diesel prices by Rs55 per litre.
How does Pakistan’s situation compare to India’s?
India has kept petrol and diesel prices stable, but increased LPG prices.
What are some of the potential long-term economic consequences for Pakistan?
Potential consequences include high inflation, increased interest rates, a larger fiscal gap, a wider current account deficit, imbalances in the exchange rate, and higher federal government debt.
As Pakistan navigates these economic challenges stemming from regional instability, what steps might be taken to mitigate the impact on its citizens and industries?
