Geopolitics and  economics are no longer distant neighbours but have become deeply entangled, especially for countries like Pakistan whose economic fortunes are bound to global oil markets. The unfolding war involving Iran, the United States, and Israel – and the consequent de facto closure of the Strait of Hormuz – has not only sent shockwaves through global energy markets but threatens to unravel Pakistan’s fragile macroeconomic recovery.

The Strait of Hormuz, a narrow waterway between Iran and Oman, is the world’s most strategic oil passage. Nearly 20 per cent of global seaborne crude oil and a significant portion of liquefied natural gas (LNG) transit this chokepoint every day in normal times. Before the current conflict, Brent crude – the global benchmark – was trading in the low to mid-$70s per barrel range, reflecting relatively stable supply conditions in the Gulf region. On 28 February 2026, the United States and Israel launched major strikes on Iranian military targets, significantly escalating hostilities. In response, Iran effectively imposed a blockade on the Strait of Hormuz, halting tanker traffic and declaring it off-limits to non-Iranian commercial vessels – a move that immediately tightened oil supply expectations worldwide. Within days of the closure, Brent crude surged above $100 per barrel – levels not seen since 2022 – driven by fears of sustained supply disruptions. In early March, prices even spiked past $110-$116 per barrel amid steep declines in tanker traffic and precautionary production cuts by Gulf producers.

The closure of the Strait of Hormuz has illuminated Pakistan’s structural vulnerabilities in the global energy matrix and the economy’s susceptibility to external shocks.

The closure of the Strait of Hormuz has illuminated Pakistan’s structural vulnerabilities in the global energy matrix and the economy’s susceptibility to external shocks.

For Pakistan, the timing could hardly be worse. The country imports over 80 per cent of its petroleum requirements, most of it funnelled through the Gulf via the Strait of Hormuz into Karachi and Port Qasim. Before the war, Pakistan’s inflation trajectory had shown signs of a gradual easing: headline inflation hovered around 5.8 per cent in January 2026, according to the State Bank of Pakistan. But by February, inflation had climbed to around 7 per cent as energy prices began to respond to geopolitical tensions. Higher crude has translated directly into domestic fuel price adjustments. In early March, the government raised petrol and diesel prices by roughly 20 per cent to reflect higher global benchmark prices.

A detailed analysis by the Pakistan Institute of Development Economics (PIDE) highlights the macroeconomic risk: every $10 increase in global oil prices adds roughly USD 1.8-2.0 billion to Pakistan’s annual petroleum import bill. In a scenario where the Strait remains closed for months and crude averages $120-$150 per barrel, Pakistan’s monthly import bill could swell to $3.5-$4.5 billion, intensifying both the trade deficit and inflationary pressures.

The transmission of oil costs to the broader economy is not linear but pervasive. Higher fuel prices raise transportation costs, which ripple into the prices of essential commodities – particularly food, which accounts for a large share of household spending. In Pakistan’s case, PIDE estimates inflation could climb to 15-17 per cent if oil prices spike sharply and remain elevated. Even in moderate scenarios, rising energy costs exert upward pressure on core inflation, undermining real incomes and consumer confidence. This is of particular concern for Pakistan’s lower-income households, which spend a disproportionate share of their budgets on food and energy.

Confronted with this volatile geopolitical and economic environment, Pakistan’s policymakers face difficult choices. Immediate options to mitigate inflationary pressures and external imbalances include diversifying import routes and sources – for example, securing alternative supply corridors through the Red Sea and allied ports, as explored in recent discussions with Saudi Arabia. Strengthening strategic petroleum reserves – to cushion temporary supply shocks. Accelerating energy transition and efficiency measures – reducing reliance on imported fossil fuels over the medium term. But these are medium- to long-term measures. In the shorter term, managing inflation expectations, protecting vulnerable consumers, and adjusting monetary and fiscal policy settings will be critical.

Pakistan’s State Bank has maintained interest rates at 10 per cent in the face of this uncertainty, balancing inflation risks with growth concerns – a tightrope no central bank relishes.

The closure of the Strait of Hormuz has illuminated Pakistan’s structural vulnerabilities in the global energy matrix and the economy’s susceptibility to external shocks. Oil price volatility triggered by geopolitical strife is not a novel phenomenon; what is new is the intensity of its impact at a time when Pakistan’s macroeconomic health remains fragile. For an import-dependent economy, the enemy is not just higher oil prices but inflation’s persistence. If prices remain elevated or climb further, Pakistan could find itself in a widening inflationary trap, eroding living standards and complicating the recovery from previous economic setbacks.

Policymakers, civil society, and private sector leaders must collaborate not just to manage the short-term fallout but to reimagine Pakistan’s energy strategy. Without strategic diversification and resilience, economic vulnerability – like an oil tanker in a chokepoint – will remain an ever-present risk.

The writer is an independent researcher and can be reached at abdulniner09@gmail.com

© Daily Times