A recent study by Pakistan Institute of Development Economics warns that Pakistan’s economy remains highly vulnerable to any disruption in the Strait of Hormuz, a critical global energy route. The report highlights that even minor global oil supply shocks can quickly raise fuel prices, increase inflation, and place serious pressure on the country’s external accounts, making economic stability increasingly fragile in uncertain geopolitical conditions.
The study explains that nearly 20 percent of the world’s petroleum supply, estimated at around 20 million barrels per day, passes through the Strait of Hormuz. Therefore, any disruption caused by conflict or logistical issues can immediately trigger sharp increases in global oil prices. For Pakistan, which depends heavily on imported energy, such volatility can rapidly transmit economic stress across multiple sectors, affecting both businesses and households.
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Moreover, the report notes that energy imports account for over 22 percent of Pakistan’s total import bill, making the country particularly sensitive to global price fluctuations. It further explains that oil shocks influence not only crude prices but also freight costs, insurance premiums, exchange rates, and domestic taxation structures. As a result, these combined factors significantly amplify the final fuel prices paid by consumers across the country.
Using a detailed scenario-based model, the study outlines three potential outcomes: mild, stress, and severe shocks. It estimates that a mild shock could push inflation close to 8.8 percent within six months, while a stress scenario could raise it above 10.4 percent. In a severe case, inflation may exceed 12 percent, driven by rising transport costs, food prices, and strong second-round economic effects that intensify overall price pressures.
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In addition, the study warns that disruptions in the Strait of Hormuz could destabilize Pakistan’s external balance. Monthly petroleum import costs may increase by up to 384 million dollars, potentially shifting the current account from surplus to deficit. This situation could create a dangerous cycle where higher imports weaken the currency, further raising fuel costs and deepening inflation across the economy.
To address these risks, the report recommends urgent policy measures, including adopting transparent fuel pricing mechanisms, improving coordination among financial and energy institutions, and reducing reliance on diesel in the long term. It also emphasizes targeted support for essential sectors like transport and agriculture to manage inflationary pressures effectively. Ultimately, the study concludes that Pakistan must strengthen its energy resilience to protect its economy from future global shocks.