Pakistan’s economic leaders had begun celebrating signs of economic stability, including slowing inflation, rising foreign reserves, a stable currency and a record balance of payments surplus after a decade.
However, the latest escalation between the US-Israel and Iran cast doubt on this fragile progress. Rising tensions in the Persian Gulf have significant implications for Pakistan.
The Gulf countries are not only the primary source of energy imports, but also the destination for millions of Pakistanis in the diaspora and an important source of financial support during times of economic distress. Any instability in the region therefore translates directly into the fragility of the external sector in Pakistan.
The strangulation of the Strait of Hormuz and the attacks on the Gulf countries have adversely affected global oil supplies. Pakistan, which fulfills 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 dependence.
The ITC Trade Map reports that imports from the Gulf countries were about $17.1 billion in 2024. Of the total, about $13.96 billion was crude oil and petroleum products. Energy alone therefore accounts for almost 81.6% of Pakistan’s imports from the Persian Gulf and about 24.7% of Pakistan’s total import bill in 2024.
Brent oil was trading close to $70 a barrel in late February before the war. Within days, prices rose by about 34% to $106 per barrel. Pakistan imports more than four-fifths of its oil needs. Any fluctuations in the international energy markets quickly result in higher import costs. This concentration tells us how closely Pakistan’s balance of payments is linked to developments in the Gulf energy markets.
Any disruption to shipping routes through the Strait of Hormuz or sustained increases in oil prices immediately affects Pakistan’s currency position. The current increase of $36 per barrel, as predicted, will significantly increase Pakistan’s oil import bill.
In addition to the direct rise in oil costs, the increase in shipping insurance premiums and a repricing of freight costs have further driven prices higher. These developments could complicate economic management for a country that is still rebuilding its foreign exchange reserves.
Besides oil imports, remittances are the second largest channel and a lifeline for the country’s foreign exchange reserves. The country is heavily dependent on these inflows to deal with its chronic balance of payments difficulties. According to SBP’s latest statistics, Pakistan received approximately $38.3 billion in remittances in FY2025.
Of the $38.3 billion, almost 54.5%, or $20.89 billion, originates from the six Gulf Cooperation Council (GCC) countries. Saudi Arabia was the top source of remittances in the corridor, accounting for about $9.35 billion (24.4% of the total), followed by the United Arab Emirates with $7.83 billion (about 20.4%). Additional inflows came from Oman ($1.32 billion), Qatar ($1.06 billion), Kuwait ($0.85 billion) and Bahrain ($0.48 billion).
According to the United Nations Department of Economic and Social Affairs, Pakistan had about 6.9 million migrants living abroad in 2024. Of these, the GCC countries host about 3.85 million, making up about 55.7% of Pakistan’s diaspora. The diaspora sent remittances, which have traditionally stabilized Pakistan’s economy during periods of domestic crises.
During periods of high inflation and economic hardship, overseas Pakistanis sent more remittances to support their families back home, a phenomenon referred to as countercyclical. These inflows help to maintain consumption and support the exchange rate. It also partially offset the country’s persistent trade deficit.
However, the current situation introduces another challenge. Economic uncertainty is emerging in the very region that generates the majority of these remittances. Slowdowns in the Gulf economies could affect sectors that employ large numbers of migrant workers. The construction, transport and service industries account for a large part of migrant 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 travel for overseas employment belong to low- or semi-skilled occupations. In 2025, workers accounted for 465,138 registered workers, representing about 61%t 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), masons (5,700 workers), mechanics (4,961 workers) and carpenters (4,078 workers), account for smaller shares of overseas migration.
Workers in construction and manual services often rely on project-based employment. Economic uncertainty can slow infrastructure activity and reduce labor demand. Migrant workers in these sectors often experience layoffs or reduced income during recessions. Rising costs of living across Gulf cities are also reducing expatriates’ capacity to save and transfer funds.
Past crises show how quickly such pressure can affect Pakistan. During the Gulf crisis of the early 1990s, many Pakistani workers returned home as job opportunities declined, reducing remittances and increasing unemployment. A similar scenario today can also trigger such hardships for the country.
Pakistan’s links with the GCC economies extend beyond energy and remittances. Saudi Arabia and the UAE have often 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 past crises.
Regional instability may reduce the likelihood of such assistance.
The question is: has Pakistan achieved recent macroeconomic stabilization through structural changes or by implementing austerity and demand compression?
The country lacks structural changes, which is a deep concern for the economy. Fiscal policy space remains very limited, and the country’s dependence on imported energy, remittances and external financing continue to shape the country’s economic performance. These structural features make Pakistan vulnerable to external shocks. Higher oil prices will worsen inflation, which was recently tamed. A weak money inflow will put serious pressure on foreign exchange reserves.
Pakistan’s economic outlook remains 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. This pressure reveals how strongly the country depends on external conditions that it cannot control. So what is the way forward? The country should not put all the eggs in one basket and therefore diversification of both export and import markets is the need of the hour.
In terms of energy, the country needs to encourage renewable energy sources, such as solar power, as it relies on fossil fuels for 62% of its energy production. This step can significantly reduce the import bill. The country must also accelerate the CASA-1000 project and the TAPI pipeline to diversify its energy needs.
To cope with the shock of remittances, upskilling the expatriates will do the trick as skilled workers are less prone to shock. Long-term stability requires a reduction of these dependencies. Without improving domestic capacity, the country will find itself in hot water every time. 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 found at: [email protected] Wajid Islam is a research economist at PIDE. He can be found at: [email protected]
Disclaimer: The views expressed in this piece are the author’s own and do not necessarily reflect Pakinomist.tv’s editorial policy.
Originally published in The News
