Gulf War Could Cause 17% Inflation in Pakistan and Worsen Trade Deficit: Report

Rising tensions in the Middle East could pose serious economic risks for Pakistan, with global oil prices potentially surging to between $120 and $150 per barrel in a worst-case scenario, according to a new report by the Pakistan Institute of Development Economics.

The report warns that if disruptions occur in the Strait of Hormuz, Pakistan’s inflation rate could rise sharply from around 7 percent to between 15 and 17 percent.

Such a shock could also push the country’s monthly oil import bill to between $3.5 billion and $4.5 billion due to higher global energy prices.

According to the study, petroleum products account for nearly 30 percent of Pakistan’s total imports, making the country highly vulnerable to fluctuations in global oil prices.

Economists estimate that every $10 per barrel increase in oil prices can add between $1.8 billion and $2 billion to Pakistan’s annual import bill.

The study also outlines possible economic scenarios if oil prices rise further. It estimates that a $10 per barrel increase could add about $1.8 billion to $2 billion to Pakistan’s annual oil import bill. Under the current price range of $92 to $110 per barrel, inflation could rise by 10 to 15 percent and the import bill may increase by $8 billion to $10 billion.

In a severe three-month disruption scenario, inflation could climb to 15 to 18 percent while the oil import bill may surge by $18 billion to $36 billion, significantly widening the current account deficit.

The report highlights that Pakistan imports roughly 80 to 85 percent of its petroleum requirements, with most supplies coming from Gulf countries through the Strait of Hormuz. Any disruption in this route could delay shipments, raise freight and insurance costs and widen the country’s trade deficit.

Pakistan’s energy security is further constrained by limited reserves. The country currently holds petroleum stocks sufficient for only about 10 to 14 days of consumption, significantly lower than regional peers such as India, which maintains strategic reserves covering around 65 to 70 days.

The study recommends several urgent measures to reduce vulnerability, including diversifying oil import sources, building larger strategic petroleum reserves, increasing investment in renewable energy and exploring alternative supply routes to reduce dependence on a single maritime corridor.

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