Oil shock may cost Pakistan 1.5pc of GDP: experts

• External sector may face $12-14bn shock over next year, warns Hafiz Pasha• Ex-SBP chief Ishrat insists daily fuel price adjustments may cut hoarding incentives• IMF may use crisis to demand deeper concessions, says Kaiser Bengali

KARACHI: If the war continues and oil prices remain around $100 or higher, Pakistan could face a GDP hit of 1.0 to 1.5 per cent, a figure that may worsen if the regional conflict persists beyond six months, warns former finance minister Hafiz Pasha.

The most critical threat lies in the external sector, where Pakistan could face a negative impact of $12 to $14 billion over the next year. This would be driven in part by petroleum imports, which may rise by 25pc to 30pc as oil prices surge. At the same time, global shipping and insurance premiums are rising exponentially as regional risk intensifies, further inflating the import bill, Mr Pasha says.

Remittances present another layer of vulnerability. Roughly 55pc of Pakistan’s remittances come from the Middle East. As these oil-dependent economies contract due to export disruptions, demand for foreign labour may drop. Pakistanis and Bangladeshis are often the first to be sent home, potentially costing Pakistan $2bn to $4bn in inflows.

Taken together, these pressures could push Pakistan away from the currently manageable $2bn current account deficit towards a $6bn-7bn gap by the end of this fiscal year. With only three months remaining, the larger deterioration would likely unfold in the next fiscal year (2026-27), he adds.

In many ways, the trajectory risks mirroring the 2021-22 crisis, when foreign exchange reserves collapsed to nearly $4bn. Without a shift in the external environment, the pressure on reserves could once again become unsustainable.

Higher oil prices also imply a return to double-digit inflation, reversing the stabilisation achieved during FY25. The transmission mechanism is both direct and indirect: an immediate surge in petrol and energy prices followed by a second-round inflationary wave as transport costs push up prices of basic goods and services.

While inflation hovered near 7pc in February, it has already crossed the 10pc threshold. Should prices approach the $120 peaks seen during the Russia-Ukraine conflict, Pakistan risks revisiting the near-30pc inflation environment of that period, he adds.

Before the US attack on Iran, growth had been trending towards the “right side” of 3pc. That trajectory is now under threat,........

© Dawn Business