Zafar Iqbal
There are moments in geopolitics when geography becomes destiny. For Pakistan, one such moment may be approaching. The escalating tensions between the United States, Israel, and Iran are no longer a distant diplomatic drama. They carry direct and measurable consequences for an economy that has only recently begun climbing out of a prolonged fiscal crisis. At the centre of this danger lies a narrow strip of water that Pakistan has no control over, yet cannot afford to lose: the Strait of Hormuz.
The Strait of Hormuz is one of the most consequential maritime chokepoints in the world. Nearly twenty percent of all seaborne oil trade passes through it. For Pakistan, which imports more than eighty to eighty-five percent of its petroleum requirements from Gulf states, primarily Saudi Arabia, the United Arab Emirates, and Kuwait, every single barrel of that oil travels through this passage. There is no alternative route currently in active use. This is not merely a logistical detail. It is a structural vulnerability that sits at the heart of Pakistan’s energy security, and one that the current Middle East crisis has brought into sharp and uncomfortable focus.
Brent crude is already trading at approximately ninety-two dollars per barrel. Analysts are clear that this figure does not reflect market fundamentals. It reflects a geopolitical premium, the price the world pays when instability threatens supply routes. Should tensions escalate to the point of actual disruption of tanker movement through Hormuz, even for a period of three months, price projections range from one hundred and twenty to one hundred and fifty dollars per barrel. For an import-dependent economy like Pakistan’s, this is not an academic scenario. It is a fiscal emergency in waiting.
The arithmetic is stark. Petroleum products constitute roughly thirty percent of Pakistan’s total imports. Research from PIDE establishes that every ten-dollar increase in global oil prices adds between one point eight and two billion dollars to Pakistan’s annual import bill. A three-month closure of the Strait of Hormuz could triple Pakistan’s monthly import costs to somewhere between three point five and four point five billion dollars. At the same time, inflation, currently hovering around seven percent, could surge to between fifteen and seventeen percent. Freight and insurance costs, which would escalate sharply under any conflict scenario, could independently widen the trade deficit by an additional one hundred and twenty to one hundred and sixty million dollars per year. These numbers, taken together, represent a potential unravelling of the stabilisation gains that Pakistan has worked so painfully to achieve under its current IMF programme.
History does not offer comfort here. Pakistan has been through oil shocks before, and the domestic transmission has always been swift and severe. The CPI surges of 2008, 2011, and 2022, which ranged between fourteen and twenty-five percent, were driven substantially by energy costs feeding into transport, food, and every other layer of the consumer economy. Domestic fuel prices have already risen by fifty-five rupees per litre in recent months, and that increase is still working its way through the price system. If Brent crude climbs to one hundred and ten dollars or beyond, the consumer price index could approach eighteen percent, reversing years of hard-won disinflation and pushing millions of households deeper into economic distress.
What makes Pakistan’s position particularly exposed is the thinness of its buffers. Strategic petroleum reserves cover only ten to fourteen days of consumption. This is a dangerously narrow window. India, by comparison, maintains reserves covering sixty-five to seventy days and holds substantially larger foreign exchange buffers. Bangladesh, despite its own limitations, benefits from a more diversified trade structure. Sri Lanka’s recent economic collapse offers a cautionary lesson in what happens when a country with high oil dependence and weak external reserves encounters an unexpected energy shock. Pakistan shares several of those structural characteristics.
There are options being explored. Discussions are reportedly underway with Saudi Arabia to use the Red Sea port of Yanbu as an alternative shipping point, bypassing Hormuz altogether. It is a practical idea, but not a costless one. Longer routes mean freight and insurance costs rising by one hundred and fifty to two hundred percent. Delivery times extend. Logistical complexity increases. The alternative route offers a degree of diversification, but it does not eliminate the financial burden of disruption. It merely redistributes it.
What Pakistan needs, immediately, is a set of coordinated short-term measures to reduce exposure. The Pakistan State Oil company must actively monitor tanker arrivals and maintain stock levels above fourteen days at a minimum. The Yanbu route should be activated on Saudi and UAE cargoes without delay. If stocks fall below ten days, emergency demand management measures, including fuel rationing schemes, odd-even vehicle restrictions, and expanded work-from-home directives covering fifty to sixty percent of the applicable workforce, should be implemented without hesitation. Spot purchasing arrangements, similar to what India pursued with Russian crude in 2022, could save between one and one point five billion dollars and limit the CPI impact to a more manageable eight to ten percent range.
Beyond the immediate, structural reform cannot be deferred any longer. Pakistan’s strategic petroleum reserves must be expanded to cover sixty days, approximately twenty million barrels, ideally through a storage facility developed in partnership with Saudi Arabia at an estimated cost of two billion dollars. Hedging twenty percent of oil imports at ninety dollars per barrel through Singapore or Dubai exchanges could save the country eight hundred million dollars annually while cutting the inflationary pass-through by half. These are not aspirational targets. They are policy necessities that have been delayed for too long.
As Republic Policy has consistently argued, energy security and economic stability are not separate policy domains. They are expressions of the same underlying condition: a state’s capacity to manage external shocks without societal disruption. Pakistan, still operating under an IMF stabilisation framework with limited fiscal headroom, cannot absorb an oil shock of the scale now being contemplated without serious consequences for its recovery trajectory.
The Middle East is moving toward a point of dangerous unpredictability. Pakistan cannot influence what happens there. What it can influence is how prepared it is when that unpredictability arrives at its own doorstep. The window for preparation is open. It will not remain so indefinitely.
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