World Oil Price Volatility, Middle East Geopolitics, and Pakistans Inflation Dynamics

Abida Naurin
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Abida Naurin: Pakistan Institute of Development Economics, Islamabad

No 2026:53, PIDE Policy View Point from Pakistan Institute of Development Economics

Abstract: EXECUTIVE SUMMARY: Global oil prices have been increased due to the escalation of the US-Israel war with Iran, influenced by amplified geopolitical risk around the Strait of Hormuz, a corridor which transports about 20 percent of global seaborne oil trade. Due to this uncertainty crude oil prices rise by about 30 percent in early March 2026[1], demonstrating a growing geopolitical war premium rather than purely market fundamentals. Due to heavy reliance on imported energy, Pakistan remains highly vulnerable. Petroleum products account for around 30 percent of total imports, and data-based estimates suggest that every $10 per barrel rise in the price of oil increases Pakistans annual oil import bill by almost $1.8-2.0 billion. The price shock also passes directly into domestic inflation mainly through higher transport, the prices of food and energy. A three-month closure of the Strait of Hormuz can temporarily increase global oil prices to $120-150 per barrel. Under these circumstances, monthly oil import bill of Pakistan can triple to about $3.5-4.5 billion, whereas inflation could climb toward 15% to 17% from 7% recorded in February 2026.

Keywords: Strait of Hormuz crisis; Pakistan oil import impact; oil price surge 2026; Pakistan inflation CPI rise; Gulf oil dependency Pakistan; energy security Pakistan; oil hedging strategy Pakistan; geopolitical oil risk; petroleum import bill Pakistan; Hormuz closure economic impact (search for similar items in EconPapers)
Pages: 7 pages
Date: 2026
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