New Delhi, March 3 If the war between Iran and the United States escalates, "the single biggest economic threat to Pakistan will come from oil," with surging prices likely to lift inflation and making tax cuts harder, a report has said.
The editorial piece from Dawn said inflation would rise again due to surging oil prices, making further policy rate cuts unlikely, and industry would face higher input costs, shrinking fiscal space and limiting the government’s ability to lower taxes or provide relief.
“For every $10 increase in oil prices, Pakistan’s inflation typically rises by about 0.5–0.6 percentage points,” the editorial cited an expert.
A similar surge in oil prices will cause the current account deficit to increase by roughly $1.5–$2 billion, the report cited former chief executive officer of the Pakistan Business Council, Ehsan Malik.
“If prices were to climb to $100, the deficit could expand by $5–$7 billion on an annualised basis, potentially undoing recent gains that allowed FY25 to post a $2 billion current account surplus,” Malik said.
Analysts recalled the economic horror in initial days of the Russia–Ukraine war that gripped Pakistan when Brent crude hovered around $100–125 per barrel, leading the country close to sovereign default.
"The war pushed up oil prices, widening Pakistan’s import bill and putting pressure on the exchange rate. The rupee dipped from around Rs 170 per dollar in early 2022 to a peak of Rs 305 on Aug 28, 2023, before stabilising in the Rs 270–280 range by end of that year," the editorial said.
Iran's retaliatory strikes on oil and gas facilities have heightened fears of supply disruption, lifting oil prices and stoking inflation worries. Tehran reportedly targeted oil and gas infrastructure in Saudi Arabia and threatened shipping in the strategic Strait of Hormuz.
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