With Israel’s military strike on Iran pushing Arab Light crude above USD 69/bbl as of June 13, 2025, Pakistan’s vulnerability to oil price shocks has intensified. In 10MFY25, the country imported USD 12.8 billion worth of petroleum products, up 3% YoY from the same period last year. Historically, for every USD 5 increase in oil prices, Pakistan’s import bill rises by approximately USD800mn- 1,000mn per year. If the conflict prolongs, the elevated oil prices could significantly strain the country’s trade balance and fiscal outlook.
Strain on Current Account and Financing Requirements
Pakistan’s external sector may soon face renewed pressure, as higher global oil and LNG prices directly impact the current account (CA). While the CA posted a USD 1.9 billion surplus in 10MFY25, this buffer could erode quickly if oil costs remain elevated. A deterioration into deficit territory could require additional financing from multilateral institutions, Saudi oil credit facilities, or bilateral loans. This may also complicate ongoing negotiations with the IMF, potentially diverting crucial funds away from development projects toward essential commodity imports.
Rupee Depreciation and Inflation Spike
The ongoing energy price shock is expected to trigger both inflationary pressure and currency depreciation. With headline inflation averaging 4.6% in Jul–May FY25, sustained oil prices above USD 70/bbl could accelerate inflation in the coming months. Meanwhile, rising demand for US dollars to finance pricier imports may weaken the PKR beyond 285/USD, reversing the recent exchange rate stability. In this environment, the State Bank of Pakistan (SBP) may be forced to delay or even reverse anticipated rate cuts, keeping the policy rate at 11%, which could further stifle credit availability and private sector growth.
Impact on Shipping and Trade Logistics
Beyond oil prices, Pakistan also faces indirect consequences from global shipping disruptions. About 20% of global oil and LNG flows through the Strait of Hormuz, a critical chokepoint now at risk due to the Israel–Iran standoff. Any prolonged disruption could push up freight rates and double war-risk insurance premiums. With Pakistan importing over 200 petroleum cargoes annually, an added USD 600,000–800,000 per shipment could inflate the annual trade bill by USD 120–160 million. Major importers such as PSO may experience delays and rising demurrage costs, while PNSC may benefit in the short term from higher freight charges—offset by rising bunker fuel expenses and insurance risks.
Fiscal Challenges and Policy Trade-Offs
Rising oil prices have created a significant policy dilemma: either pass the full cost to consumers, which risks public unrest and higher inflation, or absorb the increase through subsidies, which would widen the fiscal deficit. Pakistan has already spent over PKR 1.04 trillion on energy subsidies in recent years. Further outlays could deepen the circular debt crisis, which remains above PKR 5.2 trillion (Power and Gas), and derail progress on fiscal consolidation under IMF programs. The government must urgently secure external financing, optimize energy procurement, and prepare contingency plans to avoid slipping back into macroeconomic instability, balance-of-payments stress, and stagflation.
KSE-100 Index Volatility and Sectoral Implications
The KSE-100 Index, which has remained relatively stable in recent weeks, may face renewed volatility amid heightened regional tensions. Historically, such geopolitical shocks have triggered capital flight from emerging markets, leading to 5–10% corrections in index levels. Foreign portfolio investors are likely to reduce exposure, particularly in energy-intensive sectors such as automobiles, cement, steel, and textiles. However, Exploration & Production (E&P) companies—including POL, OGDC, PPL, and MARI—may benefit from rising crude oil prices, as seen during previous oil price surges. Nonetheless, overall market sentiment is expected to remain cautious until there is greater clarity on the conflict’s scope and duration.
