The world is watching oil prices. Analysts are debating recession risks, central banks are recalibrating, and Western governments are scrambling over strategic reserves. But lost in this global noise is a more targeted, more urgent question that hits closer to home: what does the US-Israel war on Iran actually mean for Pakistan? Not in abstract macroeconomic terms – but in the concrete, unsparing language of foreign exchange reserves, remittance flows, fertilizer supply chains, and the livelihoods of tens of millions of Pakistanis who feed the country and work its fields.
The answer is deeply troubling. And Islamabad’s response so far – a four-day work week, school closures, rotating work-from-home schedules – while symbolically earnest, barely scratches the surface of the structural challenge Pakistan now faces.
The Oil Bill Nobody Wants to Talk About
Pakistan relies on imports for more than 80 percent of its oil needs. That dependency was always a vulnerability. The US-Israel strikes on Iran that began on February 28, 2026, and the subsequent disruption to the Strait of Hormuz – through which 20 percent of global oil supplies transit – turned that vulnerability into a crisis almost overnight.
The cruel arithmetic here is that the oil shock and the remittance shock hit simultaneously, from opposite directions.
Pakistan’s Finance Minister Muhammad Aurangzeb warned that the country’s monthly oil import bill could increase by $600 million in the backdrop of the conflict. Annualized, that is an additional $7 billion or more layered onto an economy whose foreign exchange reserves are already razor thin. Pakistan’s largest ever fuel price hike followed, with petrol and diesel prices jumping roughly 20 percent in a single week, with further increases in tow. Analysts warned this fuel shock could trigger a second wave of inflation.
PM Sharif’s austerity announcements received considerable attention. But let us be direct: the structural costs of Pakistan’s state apparatus – the perks, pensions, and privileges of the military, the judiciary, and a sprawling bureaucracy – dwarf whatever savings a shortened work week can produce. Austerity theatre, however well-intentioned, is not a balance-of-payments strategy or a solution to systemic economic problems of Pakistan, a point discussed in detail by Ex PM Shahid Khaqan in a press conference on April 4.
The Remittance Lifeline – Now Under Threat
Here is where the real, underreported story lies. Pakistan does not just import oil from the Gulf. It exports its people – and imports their earnings. Remittances, $28 billion in 2025, generate the foreign exchange for Pakistan to cover its trade deficit, $26 billion in 2025. And, about 54 percent of Pakistan’s total remittances originated from the Middle East in 2025.
The region historically attracts 700,000 to 800,000 new Pakistani migrants every year. These are not abstract statistics. They represent families, mortgages, school fees, and the economic floor beneath Pakistan’s working and lower-middle classes.
The war is already undermining this. According to the Pakistan Institute of Development Economics, there will be no fresh migration of Pakistani workers to the Gulf this year, and half a million may return home amid the prolonging conflict. If the crisis persists, around half a million new workers may be unable to migrate to the Middle East in 2026, while a similar number could be forced to return – reducing remittance inflows by $3 to $4 billion annually.
To put that in proportion: Pakistan’s domestic labor market absorbs roughly two million new entrants a year. The Gulf has historically absorbed a third of that pressure. Remove that safety valve, and you are not just looking at a balance-of-payments problem – you are looking at a social stability problem.
The Compounding Effect
The cruel arithmetic here is that the oil shock and the remittance shock hit simultaneously, from opposite directions. Higher oil prices drain reserves. Lower remittances reduce the inflows that replenish those reserves. A 15 percent decline in remittances alone would mean a shortfall of around $3 billion, widening the current account deficit and putting additional pressure on the rupee. Pakistan was already navigating a fragile IMF-supported recovery when the war began. That recovery assumed remittance inflows would help keep the current account deficit within 0 to 1 percent of GDP. Those assumptions no longer hold.
The Hidden Front: Fertilizer, Food, and a Nation Already Under Water
There is a third shock, and it is the one receiving the least attention – not just in global coverage, but in Pakistan’s own policy discourse. It strikes at the heart of the largest sector of Pakistan’s economy: agriculture.
Agriculture employs roughly 40 percent of Pakistan’s workforce and contributes around a fifth of GDP. Its vulnerability is not theoretical. It is playing out right now, in the fields of Punjab and Sindh, as farmers stare at skies that will not cooperate and market shelves where fertilizer is becoming harder and more expensive to find.
The Strait of Hormuz crisis has created what agricultural economists are calling a nightmare scenario for global fertilizer supply. About 46 percent of global urea supply comes from the Gulf region, and as much as one-third of global fertilizer trade could be disrupted if the closure of the Strait of Hormuz persists. Urea export prices from the Middle East have surged by about 40 percent, rising from just under $500 to over $700 per metric ton. Pakistan is caught in this squeeze from two directions at once. It imports urea. But it also produces urea domestically – using natural gas as feedstock. Deprived of natural gas supplies from Qatar, fertilizer firms in Pakistan have had to shut down production. Pakistan is among the countries immediately and most severely impacted in South Asia – and there are no strategic international fertilizer stockpiles the way there are for oil.
This is not a future problem. It is happening now, at the worst possible moment. Pakistan’s Meteorological Department has forecast another spell of stormy weather from April 5-9, brought on by a fresh western disturbance, with heavy rains, hailstorms, and severe windstorms already damaging standing wheat crops across the plains of Punjab. Wheat harvest is in March and April, but farmers are now increasingly alarmed that repeated rain during the harvesting period could damage crops and reduce overall yields. Rain that benefits wheat in its growing phase is devastating during harvest – grain left in wet fields turns black, mold sets in, and moisture content disqualifies it from government procurement standards.
The compounding of high urea cost and too much rain is almost biblical. While farmers lose their wheat crop and the resulting income, they are faced with increased cost of cultivation of their next crop. A double whammy!
The Longer View: Crisis as Catalyst
Amid this genuine emergency, there are reasons for a more measured and ultimately more strategic reading of Pakistan’s position – if Islamabad is willing to do the harder institutional work.
The most immediate upside is post-war reconstruction. When this conflict ends – and it will end – the Gulf will need to rebuild. Qatar’s LNG facilities, Saudi infrastructure, the broader Gulf construction economy will require massive labor inputs. Investing now in skill development and training programs can improve the competitiveness of Pakistani workers in global markets and position Pakistan to capture a disproportionate share of that post-conflict demand. Workers who return from the Gulf today are not lost assets – they are a trained, experienced labor force that, with the right vocational upskilling, can re-deploy at scale when the region stabilizes.
Second, this crisis makes the case – unarguably – for labor market diversification beyond the Gulf. Third, by 2025, Pakistan had 34 gigawatts of solar capacity, with an estimated 25 gigawatts feeding into the national grid. The energy crisis makes the case for accelerating domestic renewables with new urgency. Every megawatt generated at home is a barrel of oil Pakistan does not need to import. As Shahid Khaqan pointed out in a recent presser, government needs to incentivize renewable energies and electric vehicles and motorbikes, not dis-incentivize them as they are doing in the case of solar power generation.
On agriculture, the longer-term lesson is equally stark: Pakistan’s fertilizer dependency must be addressed as a matter of national food security. That means investing in domestic gas production, expanding organic and precision agriculture programs, and developing regional fertilizer stockpiling agreements with neighbors. Less reliance on imported fertilizers could protect farmers and consumers from energy price swings and climate shocks alike.
Finally, Pakistan’s geopolitical neutrality in this conflict gives it a rare diplomatic asset. As regional reconstruction conversations begin, Islamabad’s relationships across all parties could make it a preferred partner for both labor supply and broader economic engagement.
None of this requires wishful thinking. It requires governance – honest, strategic, and shorn of the self-dealing that has historically consumed the fiscal space Pakistan needs to invest in its own people.
The writer is a former Senior Advisor to the Government and a sector development specialist. He is a member of the APP Think Tank and Pakistan’s Buddhist Heritage Promotion Ambassador for Green Tourism, a company under SIFC.