Middle East Tensions Threaten Pakistan's Fragile Economic Recovery

The escalation involving the United States, Israel and Iran has raised concerns over the country's heavy dependence on the Gulf region for energy, remittances and financial support, according to The News International report.

In recent months, Pakistan had shown improvement in key economic indicators such as easing inflation, rising foreign exchange reserves, a stable currency and even a current account surplus after nearly a decade.

However, the ongoing crisis in the Persian Gulf has cast doubt on how long this progress can last, the report said.

A major concern is Pakistan's dependence on oil imports through the Strait of Hormuz. Around 81 per cent of the country's oil imports pass through this route.

Any disruption in this narrow shipping lane can immediately affect supplies and increase costs.

The impact of rising oil prices is already being felt. Brent crude prices, which were around $70 per barrel before the conflict, surged to over $100 within days.

For a country like Pakistan, which imports most of its energy needs, such a spike directly increases the import bill and puts pressure on foreign exchange reserves.

Apart from energy, remittances form another key pillar of Pakistan's economy. In FY2025, the country received about $38.3 billion in remittances, with more than half coming from Gulf nations.

Saudi Arabia and the United Arab Emirates together accounted for a large share of these inflows.

However, the current crisis could also affect these inflows. Economic slowdown in Gulf countries may impact sectors like construction and services, where a large number of Pakistani workers are employed.

Many of these workers are in low or semi-skilled jobs, making them more vulnerable to layoffs during economic uncertainty.

Reduced incomes and higher living costs could limit their ability to send money back home.

Pakistan's economic ties with Gulf countries go beyond trade and remittances. Nations like Saudi Arabia and the UAE have historically supported Pakistan during financial crises through deposits and deferred oil payment facilities. But regional instability may reduce the chances of such assistance in the near term.

Experts warn that Pakistan's economic structure remains highly dependent on external factors.

While recent stability has been achieved, it is largely driven by short-term measures rather than deep structural reforms.

This makes the economy vulnerable to global shocks such as rising oil prices and geopolitical tensions.

Looking ahead, analysts suggest that Pakistan needs to diversify its energy sources and reduce reliance on imported fuel.

Increasing the use of renewable energy and expanding alternative supply routes could help lower risks.

At the same time, improving the skills of its workforce may make remittance flows more stable during global downturns.

- IANS