Middle East crisis becomes global economic shock, risks Pakistan economy: PIDE

ISLAMABAD, Mar 26 (APP):The Pakistan Institute of Development Economics (PIDE), in its latest edition of ‘Policy View Point,’ on Thursday warned that the ongoing Middle East crisis had evolved into a global economic shock, posing serious risks to Pakistan’s trade, energy security and external sector stability.

The study, authored by PIDE Professor of Economics Dr Syed Hasanat Shah and PIDE Research Economist Wajid Islam, estimated that Pakistan’s direct exports to GCC countries could fall by $1.5 to $2 billion if disruption in the Strait of Hormuz persisted, while imports from the region, particularly energy imports, could decline sharply, disrupting domestic production and export activity.

At the same time, it said, rising international oil prices could add $4.5 billion to Pakistan’s import bill, further widening the current account deficit and increasing pressure on foreign reserves.

The report noted that 81.6 percent of Pakistan’s energy imports transited through the Strait of Hormuz, exposing the economy to severe supply shocks.

It further highlighted that if global oil prices rose from $80 to $160 per barrel, Pakistan’s trade deficit could expand from $24 billion to $41.8 billion, while inflation might surge from 7.1 percent to 11.1 percent.

Beyond trade volumes, the study warned of broader spillover effects. Rising freight costs, war risk premiums, and disrupted shipping routes could significantly weaken Pakistan’s export competitiveness, particularly in the textile sector, which accounts for nearly 60 percent of total exports.

Moreover, any slowdown in remittances from GCC economies would further strain Pakistan’s balance of payments, given the country’s reliance on external inflows.

To mitigate these risks, PIDE recommended immediate and long-term policy measures.

In the short term, Pakistan should reroute oil imports to Yanbu Port via the Red Sea to bypass the Strait of Hormuz. In the long run, the country must diversify energy sources, invest in renewable energy, and leverage CPEC 2.0 to expand trade routes toward China and Central Asia.

The report concluded that while the crisis presented significant risks, it also offered an opportunity for Pakistan to strengthen its economic foundations. Moving forward, resilience will depend on competitiveness, innovation, and strategic policymaking rather than reliance on external support, it added.