Hafiz Ahmed
The Strait of Hormuz does not need a war to unsettle global energy markets. It only needs a rumour of one. The latest flare-up around that narrow corridor of water, barely wide enough to justify the outsized role it plays in the world’s energy arithmetic, sent crude prices climbing before they eased back down. The movement was brief. The message was not. Global oil markets are held together right now by little more than the hope that things do not get worse. That is not stability. That is suspense.
For Pakistan, the distinction matters enormously. The country has spent the last year pulling itself back from the edge of a macroeconomic collapse that emptied foreign exchange reserves, crushed the rupee, and drove inflation to levels that reduced ordinary families to choosing between meals and medicine. That period of acute crisis has formally passed. The State Bank has cut interest rates from historic highs, inflation has moderated, and there are visible signs of economic activity returning. But none of this is secure. Recovery in Pakistan at this moment resembles a man who has just regained his footing on a wet floor. He is standing. He is not safe.
The State Bank has already signalled renewed concern about energy-driven price pressures. Policy tightening has quietly resumed. Borrowing costs, which had only just begun to decline after years of punishing levels, are edging upward again. Into this environment, a sustained spike in oil prices would not arrive as a complication. It would arrive as a reversal. The transmission is not theoretical. It has been lived through too many times in this country for anyone to pretend otherwise. Higher fuel costs raise transport expenses, which raises the cost of moving goods, which raises the price of everything that moves. Production costs climb. Margins compress. Businesses pass the pain to consumers who are already stretched. The cycle is ugly and familiar.
What sharpens the danger this time is the narrowness of the margin. Pakistan’s external account has stabilised, but it remains fragile and sensitive to energy imports. Even a moderate increase in oil prices translates into a materially higher import bill. That bill is paid in dollars. Dollars Pakistan does not have in abundance. Every additional billion spent on energy imports is a billion not available for reserves, for debt servicing, for import cover. The pressure cascades: a higher import bill weakens the currency, a weaker currency raises the rupee cost of all imports, a higher rupee cost of imports feeds back into domestic prices, and the inflation that had just been brought under control returns through the back door.
Pakistan has navigated this cycle repeatedly. The tragedy is not that the cycle is unknown. It is that knowing it has not been enough to break it. Each episode of oil price volatility produces the same acknowledgement: Pakistan is dangerously exposed to imported fuel costs, diversification is essential, long-term energy planning is overdue, and something must be done. Something is always about to be done. The gap between intention and execution has widened with each passing cycle, and the country’s structural dependence on fossil fuel imports remains essentially unchanged despite years of conversation about alternatives.
Pakistan’s diplomatic role in the region deserves honest acknowledgement here. The country played an active part in facilitating the direct Iran-US talks that brought the active conflict phase to a close. That was not a trivial contribution. Mediating between two parties with decades of accumulated grievance and mutual suspicion requires political capital, geographic access, and credibility with both sides. Pakistan exercised all three. The ceasefire, however imperfect and however fragile, would likely not have held as long as it has without that diplomatic effort. This contribution should be on the record.
But the latest Hormuz flare-up demonstrates something important about the limits of diplomatic achievement in the absence of structural reform. A single incident in a strategic corridor can move oil prices across the globe within the span of a trading session. Mediation that took weeks to accomplish can be undone in hours by an uncontrolled confrontation on the water. Regional stability, no matter how carefully Pakistan helps to cultivate it, cannot be guaranteed by Pakistan alone. What Pakistan can control is how exposed its own economy is when stability falters. At present, that exposure is severe.
The short-term responses available to the government are limited and inadequate. Adjusting fuel prices to manage fiscal pressure, temporarily rationing consumption, or seeking IMF flexibility on fiscal targets may ease the immediate discomfort. These measures do not touch the underlying problem. The underlying problem is that Pakistan imports a very large share of the energy it consumes, pays for it in foreign currency it must borrow or earn through exports, and has built an economy whose price level is highly sensitive to what happens in the Persian Gulf. Until that structural reality changes, every period of regional tension will produce the same economic anxiety in Islamabad.
There is also a coherence problem between external diplomacy and domestic policy. Pakistan’s engagement in regional de-escalation is necessary and should continue without reservation. But diplomacy aimed at regional stability must be matched by domestic policy aimed at reducing the economy’s vulnerability to external disruption. These two efforts reinforce each other when pursued together. When pursued separately, or when one outpaces the other, the result is a country that works hard to calm regional fires while leaving its own economic structure exposed to the heat.
The signals from global markets remain unsettled. Ceasefire conditions are being tested. Geopolitical risk in the Gulf has not retreated. It has only quietened temporarily. Pakistan has seen this pattern enough times to understand what it means. The question the country must honestly answer is whether this episode will produce the same cycle of recognition and inaction that previous ones did, or whether the combination of economic fragility and diplomatic exposure will finally generate the political will for structural change. Recognising the vulnerability is not the hard part. Pakistan has been recognising it for decades. Acting on it, with consistency and without reversal, is the test that keeps being deferred.
