IN today’s interconnected world, what happens in the Middle East is no longer confined to regional instability; it quickly translates into global inflation, causing widespread economic uncertainty across continents. Oil no longer happens to be just a commodity as it has become a strategic instrument capable of reshaping economies overnight. Tension in the Strait of Hormuz has underlined how energy markets are now integrated with global financial systems and supply chains.

For the global economy, the conse-quences are severe, particularly for all the developing and energy-importing countries, like Pakistan, where higher oil prices quickly lead to inflation, currency depreciation and fiscal stress. Rising fuel costs increase electricity tariffs, transport expenses, industrial production costs and ultimately consumer prices, intensifying the cost-of-living burden.

International institutions consistently highlight these risks. The International Monetary Fund (IMF) has projected a global growth at around 3.1 per cent, while the World Bank estimates have put it closer to 2.6pc, both emphasising energy volatility and geopolitical uncertainty as key constraints on global stability. Despite differences in estimates, the core message remains the same: the global economy remains fragile and vulnerable to renewed shocks.

The inflation outlook and oil pricing trajectory remain heavily dependent on geopolitics and supply-side conditions. If geopolitical tensions persist alongside cautious oil production policies and continued disruptions in energy-exporting regions, global supply conditions are likely to tighten further. Even with slowing demand growth, supply uncertainty alone is sufficient to keep prices elevated.

Under improved geopolitical stability, oil prices may stabilise around $85-95 per barrel, while under moderate tensions, they may remain in the $100-110 range, and, in the event of severe escalation in the Middle East, prices could exceed the $130 per barrel mark, triggering another global inflationary wave. In the long run, although renewable energy adoption is accelerating, the transition remains uneven across countries to make an impact in global terms.

Inflation trends also reveal a clear-cut divergence. Advanced economies are likely to remain in the 3-4pc range, while emerging economies may face 6-8pc inflation. Energy-importing economies remain the most vulnerable, where infla-tion could reach 8-12pc under sustained oil price pressure. This reflects how unevenly global shocks are distributed.

Several structural weaknesses are intensifying global vulnerability simul-taneously. High public debt is limiting fiscal space, while tighter monetary policies are increasing borrowing costs.

At the same time, supply chain fragility continues to disrupt global trade flows, and currency depreciation is amplifying imported inflation, especially in develop-ing economies.

For Pakistan, the warning signs are already visible, and the implications are particularly severe due to its heavy dependence on imported energy. The current crisis has again exposed Pakistan’s vulnerability to external oil shocks. The steady upward movement of fuel prices demonstrates how quickly external energy disruptions cause domestic inflationary pressure. Pakistan’s petroleum import bill — around $15-17 billion annually before the crisis — is now projected to rise towards $20 billion or even higher.

The global scenario suggests that the next major crisis may not originate in financial markets and systems; it is increasingly likely to emerge in the energy markets. This reality reinforces the defining truth of the 21st century: energy security is economic security. For Pakistan, the risks are more severe than many others. Short-term policy responses are no longer sufficient. Long-term stability requires energy diversification, investment in renewables, regional cooperation, and reduced dependence on imported fuel.

Dr Parvez Ahmed Shaikh
Uthal

Published in Dawn, May 30th, 2026