IF THE war between Iran and the United States escalates, the single biggest economic threat to Pakistan will come in the shape of oil.

Brent crude settled around $72.5 a barrel on Friday, already up nearly 19 per cent year-to-date, according to CNBC. Rumours are swirling of oil touching $100. For Pakistan, even modest increases carry heavy consequences.

For every $10 rise in oil prices, the current account deficit increases by roughly $1.5-$2 billion, explains former chief executive officer of the Pakistan Business Council, Ehsan Malik.

“If prices were to climb to $100, the deficit could expand by $5-$7bn on an annualised basis, potentially undoing recent gains that allowed FY25 to post a $2bn current account surplus.”

For a country already ravaged by rising inflation, risks to oil supplies will weigh heavily, especially during Ramazan

Iran produces roughly 3-3.5 million barrels of oil per day, exporting about 1-1.5m barrels. While this is far lower than the output of the United States (about 13.5m barrels per day) or Saudi Arabia (around 9-10m), even a loss of one million barrels per day can tighten global balances and push prices higher.

Compounding the risk is the strategic importance of the Strait of Hormuz, the narrow waterway through which roughly 20pc of global oil consumption passes. For years, Iran has threatened to block this passage during periods of heightened conflict.

According to Reuters, oil and gas shipments through the area have already faced disruption, with Iran’s Revolutionary Guards reportedly warning ships that passage is not permitted.

The ripple effects are already visible. Late Saturday night, petrol prices at pumps in Canada had risen by roughly 10-15 cents per litre, Mr Husain says, speaking from experience.

Oil prices have a multiplier effect as they impact secondary markets. For example, edible oil prices — of which Pakistan imported roughly $3.7bn in FY25 — are indirectly linked to crude oil markets, Mr Malik explains.

“For every $10 increase in oil prices, Pakistan’s inflation typically rises by about 0.5-0.6 percentage points,” says Waqas Ghani, head of equity research at JS Global Capital.

If oil prices surge, inflation would rise again, making further policy rate cuts unlikely. Industry would face higher input costs, weakening exports. At the same time, fiscal space would shrink, limiting the government’s ability to lower taxes or provide relief, adds Malik.

PSX and gold

For equity markets, the implications extend beyond macroeconomic concerns.

Pakistan’s manufacturing sectors rely heavily on imported raw materials and energy inputs. “Take the cement sector as an example,” says Mr Ghani. “If oil prices rise, the prices of these fuels also increase, raising production costs.”

Because many industries depend on imported inputs across the value chain, higher commodity prices quickly squeeze profit margins.

Beyond fundamentals, market sentiment itself has turned cautious. “Investors are already becoming more risk-averse,” Mr Ghani noted. “When uncertainty rises, equities are usually the first asset class where investors reduce exposure.”

Pakistani stocks are likely to fall initially, he adds, though the extent will depend on developments overnight. Some markets that opened on Sunday were already down close to 2pc.

As the Pakistan Stock Market bleeds, investors may turn to gold, which is expected to surge. On Saturday, local gold prices jumped by Rs10,000 per tola in Pakistan.

Qasim Shikarpuri, president of the All Pakistan Sarafa Gems and Jewellers Association, expects international prices to rise by $200-$300 per ounce once markets reopen.

“If that happens, local gold prices could surge by as much as Rs60,000 per tola,” he says.

Bazaars and shopping

Retailers say geopolitical tensions are already affecting shopping activity during Ramazan, a critical sales period for bazaars and malls.

“We have seen this before,” says Asfandyar Farrukh, chairman of the Chainstore Association of Pakistan. “Even a few days ago, when tensions flared between Pakistan and Afghanistan, and warnings were issued, there was an immediate impact.”

The effect is most visible over the weekend, when shopping activity typically peaks.

“If things improve within two or three days, the lost sales can be made up,” he says. “But if uncertainty continues through Ramazan, then the impact could become more significant.”

“People still need to shop for Eid. What they usually do is go out earlier in the day or spread their visits over time,” he said. “But overall, there could still be a 20-25pc decline in footfall during periods of heightened tension.”

A detailed version of this article can be accessed on Dawn.com

Published in Dawn, March 2nd, 2026