Dr. Ikramul Haq & Abdul Rauf Shakoori
The recent military conflict between Israel and Iran not only destabilized an already fragile Middle East but also posed a grave threat to global peace and economic security. The surprise attack by Israel on Iranian nuclear facilities violated international law and the foundational principles of the United Nations (UN) Charter. The act of aggression and subsequent attacks ignored the authority of the UN Security Council and blatantly undermined the Nuclear Non-Proliferation Treaty (NPT), to which Iran is a signatory.
The Iranian retaliation, in the wake of involvement of the United States of America (USA) in targeting Iranian nuclear sites, raised fears of a full-scale regional war. The ceasefire eventually brokered by President Donald J. Trump came after global outcry and mounting pressure from the international community.
However, the damage had already been done, with global oil prices spiking and investor confidence shaken. The Strait of Hormuz, a vital artery for nearly 20 percent of the world’s oil trade, became a geopolitical flashpoint overnight, leading to volatility in commodity markets and threatening the already vulnerable global economy.
The economic aftershocks of the Israel-Iran conflict resonated worldwide, but especially affected countries like Pakistan, whose economic stability is already under pressure. Pakistan’s geopolitical location, historical alliances, and active diplomatic role placed it in a sensitive position during the conflict. The government of Pakistan adopted a balanced and principled diplomatic approach, urging restraint and calling for peaceful resolution through the United Nations.
The crisis came just after Pakistan concluded its own conflict with India, which had further strained the country’s fiscal and security apparatus. The recent war with India not only tested Pakistan’s military preparedness but also disrupted trade, displaced populations in border areas, and required substantial emergency spending, which further put pressure on the fiscal situation of the country.
The economic challenges confronting Pakistan today are as complex as they are stark and severe. The country faces high commodity prices and escalating cost of living, a depreciating currency, stagnant industrial growth, and ballooning debt repayments. Similarly, foreign reserves have stabilized somewhat due to international support, but the structural weaknesses of the economy persist.
One significant area of hope lies in Pakistan’s renewed commitment to strategic initiatives like the China-Pakistan Economic Corridor (CPEC). Prime Minister Shehbaz Sharif recently reaffirmed this commitment during his meeting with Chinese Ambassador Jiang Zaidong, highlighting the importance of projects like the ML-1 railway upgrade, the expansion of the Karakoram Highway, and the development of Gwadar Port.
These infrastructure projects not only aim to improve connectivity but also to stimulate industrial and trade activities that could boost employment and regional integration. The prime minister also acknowledged China’s continued financial support, which has played a crucial role in stabilizing Pakistan’s macroeconomic indicators.
The cooperation extended beyond infrastructure to sectors like agriculture, information technology, and energy. The discussions also touched upon recent developments in the Israel-Iran war, with China praising Pakistan’s role in advocating for peace through multilateral forums. Such diplomatic engagement reflects Pakistan’s desire to be seen as a responsible regional player, even as it grapples with internal economic pressures.
The government’s efforts to expand financial inclusion and empower underrepresented groups are also noteworthy. A recent agreement with the Asian Development Bank (ADB) brought in US$350 million under the ‘Women Inclusive Finance Sector Development Program (Subprogram-II)’, aimed at enhancing female access to finance and fostering entrepreneurial activity. Such initiative builds upon foundational policy reforms and focuses on four critical areas: creating an enabling policy environment, increasing credit availability for women, promoting inclusive workplaces, and strengthening entrepreneurship capabilities.
The programme is designed not only to uplift women economically but also to contribute to broader macroeconomic stability by diversifying income sources and reducing dependency ratios. In addition to targeted international financing, Pakistan also secured a US$ one billion financing facility through an ADB-backed guarantee, signaling international confidence in the country’s reform trajectory.
The National Assembly’s recent approval of 69 demands for grants amounting to Rs. 1.65 trillion reflects the government’s aggressive fiscal planning, although questions remain about execution and transparency. The approved expenditures span critical ministries such as education, climate change, foreign affairs, law, health, science and technology, and water resources, indicating a comprehensive approach to development. However, critics argue that the allocation of funds must be backed by efficient implementation and anti-corruption safeguards to yield meaningful outcomes.
The finance minister also presented Rs. 28.77 billion in charged expenditures, covering diverse sectors including defense production, economic affairs, higher education, housing, vocational training, heritage, and maritime affairs. This extensive portfolio underlines the state’s recognition of multidimensional development needs, yet challenges remain in terms of coordination among ministries, bureaucratic efficiency, and timely disbursement. The structural deficit and debt servicing requirements continue to constrain fiscal space, limiting the government’s ability to make high-impact capital investments.
The implications of the Israel-Iran conflict on global oil prices have further stressed Pakistan’s energy-import-dependent economy. Brent crude futures rose to US$67.89 a barrel while West Texas Immediate (WTI) reached US$65.08 amid fears of disruption in the Strait of Hormuz. The initial spike in prices was triggered by Israel’s strikes on Iran, followed by the U.S. airstrikes.
Although prices later stabilized with the ceasefire, the underlying volatility remains. For Pakistan, which imports over 70 percent of its energy needs, such fluctuations translate directly into higher import bills, pressure on foreign exchange reserves, and inflationary spirals that disproportionately affect the poor and middle class.
The global economic uncertainty driven by geopolitical conflicts adds another layer of complexity to Pakistan’s economic planning. The country must now navigate not only domestic constraints but also the external environment marked by trade disruptions, capital flight, and shifting investment patterns. Pakistan’s ability to project itself as a stable and economically prudent country will be vital in attracting foreign direct investment, securing favorable trade terms, and leveraging multilateral partnerships.
The road ahead for Pakistan requires a multipronged strategy. First, the government must maintain a balanced and pragmatic foreign policy that strengthens ties with neighbouring countries and global powers while preserving sovereignty and regional stability. Improved relations with India, Afghanistan, Iran, and China could pave the way for greater trade, security cooperation, and energy connectivity. Second, structural economic reforms aimed at expanding the tax base, curbing corruption, improving public sector governance, and promoting exports are essential for long-term sustainability.
The development of CPEC and other regional connectivity projects needs expedition with transparency and efficiency to deliver tangible benefits. Third, investment in human capital through education, vocational training, and healthcare must be prioritized to build a resilient workforce capable of driving innovation and productivity. Fourth, targeted social protection schemes, like Benazir Income Support Programme (BISP) and the newly introduced women-centric financial inclusion programmes, should be scaled up to cushion the vulnerable population against economic shocks.
The international community must also play its part. Timely disbursements of pledged funds, technology transfer, and trade concessions could support Pakistan’’ stabilization and reform agenda. Meanwhile, global institutions like the UN and multilateral banks must advocate for conflict resolution and the rule of law to prevent geopolitical disputes from spiraling into economic disasters.
The recent past has demonstrated Pakistan’s resilience amid adversity, but resilience must now be coupled with vision, execution, and a people-centered governance model. The world stands at a critical juncture, and so does Pakistan. Whether it seizes this moment to transform crisis into opportunity will determine its place in the emerging global order.
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Dr. Ikramul Haq, an advocate of the Supreme Court and writer is an adjunct faculty at Lahore University of Management Sciences (LUMS). Abdul Rauf Shakoori is a corporate lawyer based in the USA.