Pakistan’s economic managers had started celebrating signs of economic stability, including reducing inflation, rising foreign exchange reserves, a stable currency and a current account surplus recorded after a decade.
However, the recent escalation between the United States, Israel and Iran casts doubt on this fragile progress. Rising tensions in the Persian Gulf have major implications for Pakistan.
The Gulf countries are not only the main source of energy imports, but also the destination of millions of Pakistanis in the diaspora and a key source of financial support during economic difficulties. Therefore, any instability in the region directly translates into fragility of Pakistan’s external sector.
The choking of the Strait of Hormuz and attacks on Gulf countries have negatively affected global oil supplies. Pakistan, which makes about 81% of its oil imports from the Persian Gulf through the Strait of Hormuz, represents the most immediate channel of vulnerability. Trade data shows the extent of this dependency.
The ITC Trade Map reports that imports from Gulf countries amounted to approximately $17.1 billion in 2024. Of the total, around $13.96 billion was crude oil and petroleum products. Therefore, energy alone constitutes almost 81.6% of Pakistan’s imports from the Persian Gulf and around 24.7% of Pakistan’s total import bill in 2024.
Brent crude was trading near $70 a barrel in late February, before the war. Within days, prices rose about 34% to $106 per barrel. Pakistan imports more than four-fifths of its oil needs. Any fluctuations in international energy markets quickly translate into higher import costs. This concentration tells us how closely Pakistan’s balance of payments is linked to developments in Gulf energy markets.
Any disruption of shipping routes through the Strait of Hormuz or sustained increases in oil prices immediately affect Pakistan’s currency situation. The current increase of $36 per barrel will, as predicted, substantially increase Pakistan’s oil import bill.
In addition to the direct increase in oil costs, rising shipping insurance premiums and revaluation of freight costs have driven prices up even further. These developments can complicate the economic management of a country that is still rebuilding its foreign exchange reserves.
Besides oil imports, remittances are the second most important channel and a lifeline for the country’s foreign exchange reserves. The country relies heavily on these flows to manage its chronic balance of payments difficulties. According to recent SBP statistics, Pakistan received approximately $38.3 billion in remittances in FY2025.
Of the $38.3 billion, nearly 54.5%, or $20.89 billion, came from the six Gulf Cooperation Council (GCC) countries. Saudi Arabia was the main source of remittances in the corridor, with around $9.35 billion (24.4% of the total), followed by the United Arab Emirates with $7.83 billion (approximately 20.4%). Additional inflows came from Oman ($1.32 billion), Qatar ($1.06 billion), Kuwait ($850 million) and Bahrain ($480 million).
According to the United Nations Department of Economic and Social Affairs, Pakistan had approximately 6.9 million migrants living abroad in 2024. Of which, GCC countries are home to around 3.85 million, constituting around 55.7% of Pakistan’s diaspora. The diaspora sent remittances, which have traditionally stabilized Pakistan’s economy during periods of internal crises.
During periods of high inflation and economic hardship, overseas Pakistanis sent more remittances to support their families at home, a phenomenon known as countercyclical. These inflows help sustain consumption and support the exchange rate. It also partially offset the country’s persistent trade deficit.
However, the current situation presents a different challenge. Economic uncertainty is emerging within the same region that generates the majority of these remittances. Slowdowns in Gulf economies may affect sectors that employ large numbers of migrant workers. The construction, transportation and service industries account for a large proportion of immigrant employment.
The composition of Pakistan’s migrant workforce reinforces this vulnerability. Data from the Bureau of Emigration and Overseas Employment shows that most Pakistani workers who go to work abroad belong to low-skilled or semi-skilled occupations. In 2025, day laborers represented 465,138 registered workers, representing around 61% of the total. Drivers were the second largest category, with 163,718 workers, or about 21.47%.
Together, these two occupations represent more than four-fifths of Pakistan’s migrant workforce. Other categories include supervisors or foremen (14,305 workers), technicians (12,703 workers), managers (11,777 workers), cooks (10,503 workers), and salespeople (9,034 workers). Skilled trades, such as electricians (6,475 workers), engineers (5,946 workers), bricklayers (5,700 workers), mechanics (4,961 workers), and carpenters (4,078 workers), account for smaller proportions of overseas migration.
Construction and manual service workers often rely on project-based employment. Economic uncertainty can slow infrastructure activity and reduce labor demand. Migrant workers in these sectors frequently suffer layoffs or reduced income during crises. Rising costs of living in Gulf cities also reduce expatriates’ ability to save and remit funds.
Past crises show how quickly such pressures can affect Pakistan. During the Gulf crisis in the early 1990s, many Pakistani workers returned home as job opportunities declined, reducing remittances and increasing unemployment. A similar scenario today can also cause such difficulties for the country.
Pakistan’s relations with GCC economies go beyond energy and remittances. Saudi Arabia and the United Arab Emirates have frequently provided financial support to the country during periods of economic stress. They have deposited in the State Bank of Pakistan and provided deferred oil payment facilities, which have stabilized the economy in previous crises.
Regional instability may reduce the likelihood of such assistance.
The question is: has Pakistan recently achieved macroeconomic stabilization through structural changes or by implementing austerity measures and demand compressions?
The country lacks structural changes, which is a deep concern for the economy. Fiscal space remains very limited and the country’s dependence on imported energy, remittance inflows and external financing continues to shape its economic performance. These structural features leave Pakistan vulnerable to external shocks. Higher oil prices will exacerbate inflation, which has recently been brought under control. Weak remittance inflows will put severe pressure on foreign exchange reserves.
Pakistan’s economic prospects remain closely linked to developments in the Gulf. Pakistan will face a host of problems, including a high import bill due to rising oil prices and a likely reduction in remittances. These pressures reveal the extent to which the country depends on external conditions that it cannot control. So what is the way forward? The country should not put all its eggs in one basket and that is why diversification of export and import markets is the need of the hour.
When it comes to energy, the country needs to encourage renewable energy sources, such as solar installations, since it depends on fossil fuels for 62% of its energy production. This measure can substantially reduce your import bill. The country also needs to accelerate the CASA-1000 project and the TAPI pipeline to diversify its energy needs.
To cope with the remittance shock, upskilling expatriates will be sufficient as skilled workers are less prone to shocks. Long-term stability requires reducing these dependencies. If domestic capacity is not improved, the country will increasingly find itself in trouble. Each episode of regional instability will continue to threaten Pakistan’s fragile economic stability.
Dr. Junaid Ahmed is head of research at PIDE. He can be contacted at: [email protected] Wajid Islam is a research economist at PIDE. He can be contacted at: [email protected]
Disclaimer: The views expressed in this article are those of the writer and do not necessarily reflect the editorial policy of PakGazette.tv.
Originally published in The News
