Economic Implication of the Iran-Israel Conflict on Pakistan: Trade, Energy, and Remittance Perspectives (2023-2026)

Joheera

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines how the Iran-Israel conflict, and the Middle East tension in general, have affected the Pakistani economy in terms of trade, energy, and remittance. Being an energy-import dependent and export-oriented economy with a large diaspora in Gulf countries, Pakistan is prone to global oil price shocks, oil disruptions along important energy routes such as the Strait of Hormuz and possible drops in remittance inflows. Pakistan saw a potential resolution of an impact on retail fuel prices of about 20 percent in 2023-2026, with an increment of petrol and diesel of 55 per Pak rupee, which has increased inflation and aggravated the trade deficit. This paper illustrates the spread of global political events in domestic economic forces using international trade theory, macroeconomic shock theory and remittance development theory. In order to reduce the risk in the short run and increase resilience in the long-term, it is recommended to diversify the trade, establish energy security measures, formal remittance protection, and implement sound fiscal and monetary policies. The paper highlights the economic fragility of Pakistan to external shocks and outlines feasible measures to help it maintain a growth and stability in the current geopolitical instability.

Keywords: Pakistan economy; Iran conflict; oil price shock; trade disruption; remittances; macroeconomic stability; energy security. (search for similar items in EconPapers)
JEL-codes: F0 F00 F01 F02 F2 F21 F24 F29 (search for similar items in EconPapers)
Date: 2026
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