Escalating tensions involving Iran, Israel, and the United States have driven global oil prices beyond $100 per barrel, raising serious concerns about Pakistan’s already fragile external account. Analysts warn that if the situation persists, the country could face a significant deterioration in its current account balance.
Experts highlight that Pakistan remains particularly exposed to energy shocks due to structural inefficiencies and its heavy dependence on imported fuel.
Ali Khizar, Head of Research at Business Recorder, explained that Pakistan’s energy-to-GDP efficiency is considerably lower than that of regional counterparts like Bangladesh and India, leaving it more vulnerable to rising prices.
He noted that major sectors such as textiles, cement, and fertilisers consume large amounts of energy, intensifying the impact of fuel cost increases.
“Therefore, energy price shocks in Pakistan are higher as we are energy inefficient.”
Khizar added that energy prices have already climbed by about 60% compared to last year, cautioning that Pakistan’s oil import bill could increase by nearly 50% in the current fiscal year.
He estimated that every $10 per barrel rise in oil prices adds around $1.5 billion to the annual oil import bill, placing immediate strain on the current account.
Although the country has reduced its dependence on imported LNG due to stronger domestic gas production, Khizar warned that “Pakistan still requires 3-4 cargoes monthly”.
“If we don’t get these cargoes, our growth will be impacted,” he said.
On the inflows side, risks are also emerging. Khizar pointed out that prolonged instability in the Middle East could cut remittances by 15–20%, as uncertainty affects overseas workers.
Analysts stressed that any disruption to expatriate employment—especially in Saudi Arabia and the UAE, which account for a large share of remittances—would further weaken inflows.
According to State Bank of Pakistan data, remittances stood at $3.3 billion in February 2026, bringing the total for July–February FY26 to $26.5 billion.
Discussing policy challenges, Khizar said Pakistan’s reliance on the International Monetary Fund programme remains crucial, adding that meeting its conditions may require currency depreciation and higher interest rates to stabilise the external account.
Saad Hanif, Head of Research at Ismail Iqbal Securities, echoed these concerns, noting that petroleum imports make up roughly one-fourth of Pakistan’s total import bill, underlining the economy’s sensitivity to oil price fluctuations.
“With oil already above $100 per barrel, the pressure on the current account has effectively materialised,” Hanif said, adding that while prices near $60 per barrel are manageable, the current spike significantly weakens the external balance.
“Based on established sensitivities, every $10 per barrel increase in oil prices widens Pakistan’s current account deficit by approximately $1.8–2 billion annually, implying a cumulative impact of nearly $5-6 billion at current levels.
“This significantly elevates Pakistan’s external financing requirement, particularly if higher prices persist alongside elevated freight and supply chain disruptions stemming from the conflict.”
Pakistan recorded a current account surplus of $427 million in February 2026, but overall posted a deficit of $700 million during July–February FY26.
Hanif also warned that remittances may not provide the same level of support this time.
“Given that a large share of Pakistan’s workforce is based in the Middle East, a prolonged conflict could disrupt labour markets, delay payments, or slow new hiring, thereby tempering remittance inflows over time.
“This reduces the effectiveness of remittances as a buffer compared to past oil price cycles,” he said.
Responding to a query, Hanif noted that while IMF funding and support from other multilateral institutions can ease short-term liquidity pressures and stabilise reserves, “they primarily address financing needs rather than offset the structural imbalance”.
Meanwhile, Fitch Ratings highlighted wider regional risks, warning that Asia-Pacific economies—including Pakistan—could face increased downside pressures if the conflict drags on.
“Large net fossil-fuel importers, such as India, South Korea, Pakistan, the Philippines, the Maldives and Thailand, would face the sharpest deterioration in external balances and real incomes if energy prices rise and shipping disruptions persist,” the agency stated.
Fitch also noted that around 90% of Pakistan’s oil imports come from the Middle East, while the country holds less than 30 days of oil reserves, both strategic and commercial.
With geopolitical tensions showing no clear signs of easing, economists caution that Pakistan’s current account outlook may worsen quickly.
“As such, in a scenario of sustained geopolitical tensions and elevated oil prices, Pakistan’s current account is likely to remain under pressure, with both key supports, remittances and external financing facing a more uncertain outlook than usual,” Hanif said.
