From the Strait of Hormuz to the PSX: What the Iran-Israel War Reveals About Pakistans Economic Vulnerability

Ahmad Fraz
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Ahmad Fraz: Pakistan Institute of Development Economics, Islamabad

No 2026:57, PIDE Policy View Point from Pakistan Institute of Development Economics

Abstract: Pakistan is not watching the Iran-Israel war from a distance. It is absorbing the shock through oil prices, inflation expectations, and equity repricing. As an oil-importing economy exposed to disruption in the Strait of Hormuz, Pakistan faces higher freight and fuel costs, pressure on the current account, and a rise in the discount rate applied to future cash flows. The PSX has already internalized this risk: Brent[1] rose sharply over the sample period, while domestic indices experienced a sharp correction, high volatility, and only uneven recovery. The broader policy lesson is clear. Pakistan needs stronger energy contingency planning, better macro-financial communication, and a durable reduction in its dependence on imported oil.

Pages: 9 pages
Date: 2026
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