Pakistan examines economic vulnerabilities exposed by Gulf conflict
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Price hikes due to Iran war dampen Eid in Pakistan
Preparations for the end of Ramadan were in full swing at a beauty salon in the Punjab, with customers getting haircuts, eyebrow-threading and henna tattoos. In Multan’s markets, crowds of women young and old shopped for colourful bangles, shoes, new clothes, make-up and sweet treats. But in Multan and elsewhere in Pakistan, the ripple effects of the US-Israeli war against Iran were being felt. “It feels very different because inflation has risen so much due to the ongoing war. Every poor person is distressed. It is affecting them deeply,” said make-up artist Rozina Amjad. Chaand Raat — the eve of Eidul Fitr — used to be “lively”, Amjad told AFP, adding: “Now that charm is gone. It’s not like it used to be.” Pakistan is reliant on oil and gas from the Gulf but since war broke out last month, fuel supply pressures have seen prices rise at the pump and government austerity measures. Rising oil prices have pushed up costs across the board, affecting purchasing power before the most important festival in the Muslim calendar. Suriya Muslim, a 35-year-old housewife, said she had already done her shopping and just needed to finish her beauty routine at the salon before preparing for guests at her home. But she feared that her family may have to cut back this year on the customary visits to relatives and friends. “Due to the war in Iran, the rise in prices has greatly affected our budget. All essential items for Eid have become very expensive,” she added. “Now our car is just parked at home. Considering the budget, we can neither take the children out, nor go shopping, nor visit any relatives. “It now seems that petrol will become even more expensive, and in this situation, it feels like Eid will remain limited to our home.” Prime Minister Shehbaz Sharif said this week there would be no military parades and flypasts at next Monday’s Pakistan Day public holiday because of the crisis in the Gulf. Further east from Multan, in Lahore, the great Eid getaway had started, with trains packed and travellers cramming onto the top of colourful, painted buses. Public transport fares have also risen, as people travel from major urban centres back to their hometowns and villages. In Lahore, 48-year-old labourer Muhammad Ramzan said he decided against travelling to his village. “I wanted to spend Eid with my children, but they’re asking for far more than I can afford,” he said. “Now I don’t even feel like going to my children for Eid. “I’m thinking of just staying here and working again. I don’t have that much money in my pocket.”
DawnMarch 19, 2026 at 01:13 PM UTCManaging wartime volatility
HERE is a quick round-up of the economic vulnerabilities opening up ahead of us. Please don’t panic when you read this. Pakistan has faced worse before and emerged from it. The price of oil for Pakistan has surpassed the historic peak set in 2008 this week. The two benchmarks that Pakistan uses to price its imports — Dubai and Oman crude — both crossed the $150 threshold in recent days. Dubai crude fell to around $120 after this (according to oilprice.com data) while Oman stayed elevated. The last fuel price adjustment on Friday, March 13, held prices steady with the government agreeing to absorb the impact of the price rises that have come subsequent to the Rs55 per litre hike of March 6. According to the directive from the Prime Minister’s Office, the cost of maintaining these caps is estimated at Rs23 billion for the seven days running from March 14 to 20 alone. That’s a lot of money; Rs23bn just to maintain a price cap for seven days. And the price hike peak came after these caps were announced. So by this Friday either they’ll have to announce an even bigger allocation for the following week, or announce another massive price increase. How massive, you might ask? Well last Friday there was supposed to be a hike of Rs75 and Rs50 per litre each for diesel and petrol respectively. That’s on top of the Rs55 per litre increase already applied on March 6. If they decide to unwind these caps now, and pass on whatever price increases the market has seen since last Friday, you could be looking at triple digit hikes potentially. Any ruler would hesitate before such a decision. The most important thing is to ensure that Pakistan stays out of the fighting, no matter the cost. But they cannot continue with the caps for very long because the country is on an IMF programme, and will have to justify how it plans to pay for these caps. At the moment, they are clawing funds for the purpose from other heads, but fuel price caps get extremely expensive, very fast. Tens of billions of rupees per week add up to hundreds of billions within a few weeks. This is what happened in 2022 when the government of Imran Khan tried to maintain caps in the face of a price spiral due to the Ukraine war. Back then, Dubai and Oman crudes had touched peaks of $120 per barrel, far below the $150 threshold they are around today. And the real price hikes in international oil markets are yet to come. Next up is the shortages of diesel and the looming fertiliser crisis due to halt in gas supply disruptions. The fertiliser crisis will, thankfully, not be as big of a burden at this time because its next big surge of demand will come after June, for the cotton crop. That month is too far away to make any calls at the moment, but we should all pray that the war ends by then and normality returns (though chances of the latter are slim). The diesel shortages are a source of concern. In the July-January period of FY26, just over 4.2 million tons of diesel were consumed in the country. Of this, 1m ton was imported and 3.3m ton were produced in local refineries. If imports should plummet, refineries will need to significantly ramp up their diesel output to ensure adequate supplies during the wheat harvesting season. From the word in oil industry circles, refineries have already been told to focus on diesel and jet fuel, especially the sort used in fighter planes, to maintain adequate stocks. The shock to commercial shipping is huge and not receiving enough attention. The ports of the Gulf have always served as crucial transit points for westbound cargoes. Two-thirds of Pakistan’s exports transit through these ports on their way to markets in the EU or North America. Since the war began, commercial shipping has largely stopped in all the ports that are behind the Straits of Hormuz. According to people in the shipping industry, no export consignments have left for at least 10 days, and import consignments that were to transit through these ports have not arrived either. Trade with the East is continuing fine, however. In effect, the closure of these Gulf ports has cleaved the world economy into two halves since these were all critical transhipment points for global maritime traffic. As a result, imports of crucial raw materials for industrial processes have been severely impacted in some cases. The pharmaceutical industry has felt the impact; plastic imports have been severely curtailed along with many other raw materials. If the port closures drag on, raw material shortages could lead to some plant closures unless they succeed in finding alternative sources of supply from the east. So far remittances seem to be holding steady, as per a few conversations with people in the banking industry. This is an incomplete picture obviously, but it’s enough to note that alarm bells don’t seem to be ringing in remittances so far. Let’s hope that trend holds through March. Pakistan is going to be pressured to enter the war because Saudi Arabia has a mutual defence agreement with it, and also has considerable leverage due in part to the $3bn deposit that was rolled over in December. That deposit has a call option, where the issuer can call for redemption if Pakistan’s IMF programme runs aground. And the Fund programme is already in choppy waters as the third review has still not been completed. In order to pass the review, the government will most likely have to show more serious external sector projections given the shocks the economy is experiencing, as well as a more serious revenue plan for the remaining months of the fiscal year. Let’s hope it stops at that. If geopolitical compulsions start playing a role, Pakistan’s room to stay away from the conflict will constrict. And the most important thing is to ensure that Pakistan stays out of the fighting, no matter the cost. The writer is a business and economy journalist. khurram.husain@gmail.com X: @khurramhusain Published in Dawn, March 19th, 2026
DawnMarch 19, 2026 at 04:22 AM UTCRupee remains stable despite regional war pressures
KARACHI: Despite 19 days of war in the Middle East, Pakistan’s exchange rate remained stable, encouraging stakeholders, including the State Bank of Pakistan (SBP) and the government. The exchange rate has largely remained stable during the current fiscal year, and predictions of destabilisation proved unfounded despite the prolonged conflict. This stability comes as regional currencies weakened; the Indian rupee depreciated by up to five per cent from Rs88 to Rs92 against the US dollar during the war, while fears of further depreciation persist. Financial sector experts believe the exchange rate is being managed to some extent, though they caution that continued war could still pose risks. Flights to Dubai, Umrah travel continue; airfares surge “This is highly appreciable and extremely supportive for the country that, despite almost three weeks of war, the exchange rate is under control,” said Zafar Paracha, a currency dealer. Exporters, however, fear that the ongoing Middle East conflict could reduce exports to the region, while production and shipping costs have risen significantly. Currency dealers in the interbank market said importers are facing payment challenges, but dollar availability has improved due to better reserves held by the SBP and commercial banks. The Exchange Companies Association of Pakistan (ECAP) said that the US dollar in the interbank market appreciated slightly by two paise to Rs279.45 on Wednesday, while the open market rate stood at Rs290.32. The financial sector also views ongoing talks with the IMF as supportive for the rupee. The government has described these discussions as positive. “This is also a positive indication that remittance inflows remained strong, showing growth during the first eight months of FY26,” said Mr Paracha, adding that overseas Pakistanis remained confident about sending money home. He noted that consignments of foreign currencies (other than US dollars) are regularly sent to Dubai for conversion into dollars and brought back to Pakistan. Flights to Dubai have continued despite the regional conflict. He added that Umrah travel remains uninterrupted, with thousands of Pakistanis still travelling to Saudi Arabia, although airfares have surged sharply. Return ticket costs for Umrah have increased from Rs150,000-200,000 before the war to Rs300,000-400,000 for one-way travel. While overall air travel to the Middle East has declined, it has not been completely disrupted. Published in Dawn, March 19th, 2026
DawnMarch 19, 2026 at 03:22 AM UTCJailed PTI leaders criticise lack of economic restructuring measures amid Gulf conflict
LAHORE: Pakistan’s fragile economy, already reeling from the shock of rising oil and gas prices, has been further exacerbated by a lack of economic restructuring measures, five senior PTI leaders incarcerated in Kot Lakhpat Jail said on Tuesday. In an open letter shared by their counsel Rana Mudassar Umer, PTI leaders Shah Mahmood Qureshi, Dr Yasmin Rashid, Ejaz Chaudhry, Mian Mahmoodur Rasheed and Omar Sarfraz Cheema said that Pakistan’s hard-earned macroeconomic stability, gained by “squeezing” ordinary citizens over the last three years, would wither away in the next three weeks if the Gulf conflict were to persist. It also said that uncertainty and the shock of rising oil and gas prices had scrapped the chances of a staff-level agreement with the International Monetary Fund (IMF). Commenting on the country’s economic situation, the leaders said it was becoming increasingly difficult to meet the performance criteria agreed upon at the time of budget formulation for the current fiscal year. “Exports remain sluggish and revenue collection far beneath the budget target. Lack of economic restructuring measures and internal confusion on economic strategy have compounded the fragile economic situation. The combined effect of higher energy prices, rising freight [and] insurance costs, and supply disruptions could reduce our exports further,” the letter said. It added that the country’s economic stability was linked to political stability and observed that “the current political environment and business as usual is no longer an option”. The PTI leaders urged the government to understand and accommodate the complexities of federalism. They pointed out that Pakistan produces only one barrel of oil out of 10 that it consumes, warning: “If the global prices fluctuate around $100 per barrel, our import bill will increase considerably and our GDP growth will drop significantly. This will not just widen our trade deficit, it will intensify pressure on our foreign exchange reserves.” They added that a rise in diesel prices at the time of wheat harvesting and an increase in the prices of gas and fertilisers at the beginning of the Kharif season would hit farmers hard. The rise in the cost of two critical agricultural inputs “will have a direct and immediate impact on agricultural productivity and purchasing power of the majority of our population living in the rural areas”, the letter said. Cotton production has fallen far short of government estimates, it claimed, compelling the textile sector to rely on imported expensive cotton lint. A rise in the price of synthetic fibres due to an increase in the price of petroleum products would have a “devastating impact on our textile sector”, the largest industrial employer of Pakistan. “Our food imports have increased by over 18 per cent and our food exports have dropped by over 34pc in the first eight months of this fiscal year,” the leaders said. Over the last few years, they said, remittances had exceeded the country’s exports and become a vital pillar of its financial stability. “They were expected to approach nearly $42 billion this fiscal year that play a crucial role in financing Pakistan’s trade deficit, servicing external debt and supporting domestic consumption,” the letter read. Stating that almost 55pc of the country’s remittances are generated by 5.5 million Pakistanis employed in Gulf states, the PTI leaders expressed fear that prolonged instability in Gulf states would slow down investments and tourism, reducing job opportunities for migrant workers and obviously impacting remittances. “Double-digit inflation over the last three years has eroded the purchasing power of the majority of our population. Higher fuel prices will translate into higher inflation,” they stated, adding that the State Bank of Pakistan (SBP), through its monetary policy, had forced the inflation down to 7 per cent, but it was now on the rise again. “A persistent demand of the business community for a reduction in the policy rate will be difficult to meet in the present circumstances, vitiating investment climate and business confidence further,” the PTI leaders observed. They also said that investments in Pakistan from friendly Gulf states “will have to be reassessed”. “Without ensuring security of Chinese personnel working in Pakistan, we will not be able to attract Chinese investments or promote industrial relocation of labour-intensive industries from China to Pakistan,” they suggested. The PTI leaders urged the government to check the rising wave of terrorism and defeat the menace of foreign-sponsored terrorism. “Governance and law and order has to be improved to attract meaningful investments into Pakistan,” they stressed. “A shift from an annual to a monthly rollover of foreign deposits with the State Bank is concerning; with the Gulf states distracted by the Middle East conflict and a fear of a global recession, rollovers will become increasingly difficult to re-negotiate,” the letter added. It explained that stabilisation achieved through an IMF prescription had always resulted in slower growth, because it focused on managing the fiscal deficit. The PTI leaders stressed that a country with a large youth population, rising rates of unemployment and a large section of its population living beneath the poverty line could not afford “the burden of wasteful government expenditure and wrong development priorities”. They also emphasised that waterways should have been given preference over motorways. “At a time when domestic fiscal discipline is critical, what message are we sending to international financial institutions by purchasing luxury aeroplanes and luxury vehicles for our ruling elite?” the letter read. The incarcerated PTI leaders stressed that Pakistan was required to re-prioritise its government expenditures and to reflect on the political attitudes. “If Pakistan has to move forward, political interests have to be subservient to our national needs,” the letter concluded.
DawnMarch 17, 2026 at 11:12 AM UTCPakistan’s solar boom shielding country from Hormuz disruptions: study
ISLAMABAD: Pakistan’s solar boom, which was driven by the installation of rooftop solar panels, is shielding the country from supply disruptions and price shocks due to the closure of the vital energy route, the Strait of Hormuz. According to an analysis published by Renewables First and the Centre for Research on Energy and Clean Air, Pakistan would be far more exposed to the price shocks now rippling out of the Middle East without the growth of distributed solar. The study noted that Pakistan has avoided more than $12 billion in oil and gas imports since 2018, which would have been needed to meet domestic energy demand. This “represents not just fiscal relief, but a structural reduction in geopolitical risk exposure that no LNG contract or hedging strategy could have delivered at equivalent scale or speed”, it added. “At the prices the market expects for this year, Pakistan could save a further $6.3 billion by the end of the year,” the study claimed. Despite the solar cushion, the Strait of Hormuz remains important for Pakistan. “In 2024, and despite reducing its reliance, Pakistan still ranked third globally in LNG dependence on Hormuz-transiting cargoes as a share of total consumption, and fifth for oil,” it said, adding that any sustained disruption to the strait would send immediate shockwaves through Pakistan’s energy system. However, due to rapid solarisation, this imported energy dependence is decreasing. “As rooftop panels spread across homes, farms, and factories, demand for LNG has fallen. The clearest signal sits in Pakistan’s long-term LNG contracts, where some shipments have been diverted to international markets, and the government has been actively renegotiating terms as solar-driven displacement reduces the need for imported volumes.” A graph showing fossil fuel import costs avoided by solar. — via Centre for Research on Energy and Clean Air According to the study, had it not been for the deployment of rooftop solar, which reduced the reliance on grid power and imported gas, load-shedding and other measures to restrict power supply during peak hours would have been considered during this energy crisis. “The fact that load shedding and other measures to restrict power supply during peak demand periods are not currently being considered shows how solar is both saving money and providing additional power.” It may be noted that the government has taken a series of measures to ration fuel amid the closure of the Hormuz Strait. A recent government briefing revealed that the country would run out of LNG by April 14 due to the suspension of its supply from Qatar. “Pakistan’s solar revolution wasn’t planned in Islamabad — it was built on rooftops. But as tensions around the Strait of Hormuz escalate, those panels are proving to be one of the country’s most effective energy security strategies, with distributed solar now shouldering a growing share of the country’s electricity needs,” said Rabia Babar, energy data manager at Renewables First. The analysis attributed Pakistan’s solar story to market forces and consumers. It also gave credit to the government for maintaining a “zero-rated tax regime on solar PV imports”, which turbocharged such imports from under 1GW in 2018 to over 51GW by early 2026 — one of the “fastest consumer-led energy transitions on record, and one that drove a 40pc drop in oil and gas imports between 2022 and 2024”. A graph showing solar PV imports in Pakistan. — via Centre for Research on Energy and Clean Air The 2022 energy crisis, after the Ukraine invasion and the “precipitous fall in costs of solar manufacturing in China,” was a catalyst for this solar surge. “This grassroots solar surge has gathered pace since the energy crisis of 2022 and has quietly delivered what years of state energy policy had not thus far: falling fuel import dependence, stronger energy security, and a measure of relief from spiralling electricity costs for millions of households.” Lauri Myllyvirta, co-founder at the Centre for Research on Energy and Clean Air, said Pakistan’s solar boom was acting “like an insurance policy against oil and LNG shocks” in this energy crisis. The study also compared Pakistan with other Asian states, pointing out that other countries such as China, India, and South Korea were “disproportionately exposed” due to disruptions in Hormuz because of their reliance on LNG. Although Pakistan still appears prominently in both the volume and dependency rankings for Hormuz-transiting energy, the trajectory is downward, it added. “China, India, South Korea and most other Asian economies have increased their LNG imports, while Pakistan’s energy curve has bent the other way,” it said, adding that any sustained disruption would continue to hit Asian economies hardest. According to the analysis, it is renewables, not oil and gas, that offer the lowest-cost path to energy access for low- and middle-income households, and “every gigawatt of distributed solar deployed is, in effect, a hedge against the brewing energy crisis”.
DawnMarch 17, 2026 at 08:17 AM UTCRisk to stability
THE risks to Pakistan’s fragile economic recovery from the US-Israel war on Iran cannot be dismissed. Yet the ultimate scale of the damage will depend largely on how the conflict unfolds in the days and weeks ahead. If the war drags on and energy prices remain elevated, Pakistan could once again find itself facing the kind of macroeconomic stress that has repeatedly disrupted its growth trajectory. At the centre of these concerns is the country’s vulnerability to global energy markets due to its heavy reliance on imported fuels. Any volatility in global energy prices could hit GDP, slowing an economy that had only recently begun to stabilise after years of turbulence. The consequences of war will not be limited to higher oil prices and supply disruptions. Prolonged conflict could also weaken remittance inflows and dampen export demand as international trade slackens. Even more worrying are the implications for the external sector. The import bill could swell sharply as petroleum purchases rise, while exports — already down by nearly 8pc during the July-February period — may weaken further as economic growth slows in key markets. At the same time, any deceleration in Gulf economies, which account for over half of Pakistan’s remittance inflows, could produce a negative external shock. Together, these pressures can widen Pakistan’s external imbalance. What is currently a manageable current account deficit could expand significantly if these trends persist. With only a few months left to the end of the fiscal year, the larger deterioration may well emerge in FY27. The trajectory bears uncomfortable resemblance to the 2022 crisis, when rising global oil and commodity prices pushed the economy to the brink, forcing Pakistan to seek a bailout from the IMF. The consequences for the public would be even more severe and last longer as higher global oil prices feed directly into petrol and electricity tariffs while also triggering a broader wave of price increases through higher transportation and logistics costs. The stabilisation achieved in FY25, when inflation began to retreat, could prove short-lived. If crude prices approach the peaks witnessed during the Ukraine war, Pakistan risks sliding back into another high-inflation environment from whose impact low- to middle-income households have yet to recover. For an economy that has only recently begun to regain some stability, the stakes are therefore high. Published in Dawn, March 17th, 2026
DawnMarch 17, 2026 at 04:17 AM UTCManaging worsening inflation
On March 9, the State Bank of Pakistan (SBP) decided to keep the policy interest rate unchanged at 10.5pc, a decision that arrived as the macroeconomic outlook became “quite uncertain following the outbreak of the war in the Middle East”. The closure of the Strait of Hormuz following the escalation compounded war-related worries for oil-import-dependent Pakistan. War-risk premiums have reportedly risen manifold since the conflict began, while obtaining insurance coverage for import cargoes has become increasingly difficult even at extremely high rates. In response, the SBP temporarily allowed oil imports on a CIF (cost, insurance, and freight) basis for 60 days, instead of the usual C&F (cost and freight) basis — a step that ensured the timely arrival of oil cargoes but could result in faster and higher outflows of foreign exchange. These developments came as inflation in Pakistan was already edging upward. Headline inflation rose from 5.8 per cent in January to 7pc in February, with the central bank noting that core inflation stood around 7.6 pc, signalling a return of underlying price pressures. Weekly inflation data showed the Sensitive Price Indicator (SPI) increased by 1.89pc during the week ended March 11, with year-on-year SPI registering an increase of 6.44pc. In these trying times, market regulators must strengthen monitoring systems, enforce stock disclosure policies, and penalise hoarding practices The impact of rising oil prices spread quickly through the economy. From March 7, the government raised petrol prices by 20.66 pc, diesel by 19.54 pc, and LPG by 12.13 pc. It also decided to review prices weekly rather than every two weeks. Under normal circumstances, central banks respond to rising inflation by raising interest rates. Pakistan’s current economic conditions, however, leave limited room for further monetary tightening. Economic growth remains fragile, with large-scale manufacturing recording modest year-on-year growth of just 0.4pc by December 2025. Businesses are already struggling with high borrowing costs and uncertain demand. Moreover, since the government itself is a major borrower from the banking system, higher rates would significantly raise the cost of servicing public debt and worsen fiscal pressures. Against this backdrop, the SBP appears to have opted for policy stability rather than additional tightening, despite the International Monetary Fund’s urging for a cautious, data-dependent monetary policy to anchor inflation expectations. Prime Minister Shehbaz Sharif has also announced measures to reduce fuel consumption within the public sector to promote energy conservation. Provincial governments are following similar steps, although past austerity drives have produced mixed results, often undermined by weak enforcement and limited behavioural change within public institutions. While energy costs dominate immediate concerns, the broader economic risk lies in food inflation. Rising fuel prices directly affect food supply chains by increasing transport costs, raising agricultural input costs, and elevating processing costs. For most households — particularly those millions of Pakistanis living below or at the threshold of the poverty line — food inflation has a far more immediate impact on living standards than many other price increases. According to the World Bank’s last assessment in June 2025, approximately 44.7pc of the population — roughly 107.95 million people — was already living below the poverty line, making sustained social protection critical as inflationary preses mount. Data from the Pakistan Bureau of Statistics highlights Pakistan’s growing exposure to food imports. During 7MFY26, the country’s food import bill reached $5.5 billion, an increase of 19.27pc compared with the same period last year. Palm oil accounted for the largest share, followed by pulses, tea, soybean oil, and sugar. Particularly striking was the surge in sugar imports, which skyrocketed by 13,494.93pc to 308,741 tonnes during July-January 2026, with the import value leaping to $174.6m from just $2.2m the previous year. This sugar import surge illustrates how quickly domestic production shortfalls can force costly emergency purchases. Federal Minister for National Food Security Rana Tanveer Hussain informed the National Assembly that last year’s sugarcane crop was affected by climate variability, reducing sugar production to approximately 5.8m tonnes from initial projections of around 7m tonnes. To stabilise domestic prices, the government authorised the import of roughly 300,000 tonnes of sugar, procured through transparent tenders from international markets including Thailand and Brazil. The priority in the present circumstances should be maintaining strategic food reserves. Government stocks of essential commodities act as a buffer against sudden supply disruptions. Deputy Prime Minister Ishaq Dar was recently briefed that the federal government currently holds around 2m metric tons of wheat, which can be released to provinces according to their needs. Officials have assured the parliament that strategic wheat reserves will be maintained through provincial procurement and fresh supplies from the 2025-26 wheat crop. The federal and provincial governments must protect vulnerable households from sudden price shocks. Programmes such as the Benazir Income Support Programme (BISP) provide financial assistance to low-income households, helping them maintain food consumption when prices rise sharply. Recent discussions between the National Assembly Standing Committee on Defence and BISP leadership have focused on strengthening social protection initiatives and expanding support for deserving families across the country. The government has already warned of strict action against anyone attempting to hoard fuel or manipulate supplies for profiteering, but the warning now needs to be translated into concrete actions. Published in Dawn, The Business and Finance Weekly, March 16th, 2026
DawnMarch 16, 2026 at 05:18 AM UTCBoosting farm competitiveness
Pakistan’s agriculture sector is increasingly operating on a knife’s edge. With diminishing resilience and declining cost competitiveness, even a single shock — be it adverse weather, a spike in input prices, or a decline in crop prices — can easily turn farming into a loss-making venture for growers. For the past four years, our farmers’ woes and challenges have remained unending, with new problems emerging at frequent intervals. A decline in global crop prices, rising agricultural input costs in Pakistan — despite a downward trend in international prices — the growing impact of climate change, and the withdrawal of support prices and government subsidies are key factors that have severely undermined the viability of farming and eroded the cost competitiveness of several agricultural commodities in export markets. The latest blow came with the Rs55 per litre increase in diesel prices, announced on the night of March 6. Diesel is used not only in tractors, but also in irrigation pumps, and in the transport system that moves crops from farms to markets. Notably, high energy prices not only raise fuel costs but also push up the prices of several other agricultural inputs as well, including fertilisers. All of this will drive up production costs. Given this situation, the long-term sustainability of Pakistan’s agriculture sector is increasingly in question, especially in a world where global petroleum prices are expected to remain volatile and periodically high, having crossed the $100 per barrel mark several times in the past. In view of the evolving landscape of the agriculture sector, Pakistan is in dire need of the right technologies to enhance its agricultural resilience Amid these pressures, to ensure the survival of farming, it is crucial to explore solutions that lower production costs, particularly tractor operations, which are highly exposed to fluctuations in diesel prices and account for a significant portion of the overall cost structure of crops. It is worth noting that diesel-powered tractors form the backbone of farming in Pakistan, which carry out multiple operations including land preparation, fertiliser and pesticide application, water pumping, crop harvesting and threshing, and transporting produce to grain markets or storage facilities. Globally, a transition is underway. Much like electric cars, buses and motorcycles, electric tractors are emerging as a viable alternative. Although electric tractors currently cost 50–100 per cent more upfront than diesel tractors, they promise significantly lower operating costs while also reducing greenhouse gas emissions and noise pollution — benefits that align with the objectives of Sustainable Development Goal 13 (Climate Action). Pakistan, however, appears to be looking the other way. The New Energy Vehicles Policy 2025–2030 appears heavily tilted toward urban mobility. While the policy incentivises two and three wheelers, passenger cars, light commercial vehicles, and buses and trucks, it completely overlooks tractors and provides no roadmap or any incentives for electrifying tractors — despite the fact that agriculture remains one of the country’s largest consumers of diesel with 714,447 tractors in operation (as of FY25), a far higher number than 169,700 buses and 321,900 trucks. Some argue that electric tractors are commercially manufactured globally in the small tractor segment (under 50 HP) mostly, and are therefore primarily used as compact utility tractors in orchards, greenhouses, poly-houses, and small farms. Unlike the US, Europe, Brazil, Russia, and Ukraine — where larger tractors in the 80–150 HP range dominate due to larger farm sizes — Pakistan’s agriculture relies largely on smaller tractors of around 50 HP, which also represent the largest share of tractor sales. This makes electric tractors far more relevant to local farming conditions than many assume. Interestingly, widespread adoption of solarised tubewells across Pakistan is another development that quietly strengthens the case for electric tractors. Over the past few years, these systems have helped farmers reduce their dependence on expensive grid electricity and diesel-powered pumps. These could create a readily available, low-cost source of power to charge electric tractors — a small but significant shift that could reshape the economics of farming. Yet, despite this clear advantage, the higher upfront cost compared with diesel tractors remains the most significant barrier to adoption. It is an acknowledged fact that new technologies almost always come at higher prices, which is precisely why governments and development agencies around the world incentivise their adoption — particularly those that boost productivity, enhance cost competitiveness, and promote a cleaner environment. In Pakistan, this approach has been evident in the promotion of other electric vehicles, where a reduction in duties and taxes has successfully encouraged uptake. In Punjab, the government is offering a subsidy of up to Rs1 million on 10,000 diesel-powered tractors that are already widespread and, in many districts, even in excess. A wiser approach would be to redirect these funds toward promoting electric tractors. Such an initiative could modernise farming and save billions in foreign exchange currently spent on diesel imports. In view of the evolving landscape of the agriculture sector, Pakistan is in dire need of the right technologies to enhance its resilience against input price shocks and sustain the viability of farming. However, it is the government’s responsibility to identify, introduce, and promote such solutions; otherwise, the country risks undermining both its food security and agricultural exports. Khalid Wattoo is a development professional and a farmer, and Dr Waqar Ahmad is a former associate professor at the University of Agriculture, Faisalabad. Published in Dawn, The Business and Finance Weekly, March 16th, 2026
DawnMarch 16, 2026 at 05:12 AM UTCA smart response to oil shocks
Pakistanis are once again confronting a familiar shock: a sharp, drastic rise in fuel prices. At the pump, it feels immediate and personal, but the real story of petrol prices runs much deeper. Energy prices are not just a cost for motorists; they are a central artery of the economy. Energy prices function much like blood pressure in the human body. If they rise too high, economic growth slows. If they are artificially suppressed for too long, fiscal deficits and debt begin to rise. The challenge for policymakers is to keep that pressure balanced so the economy can function smoothly. When fuel prices rise sharply, the effect spreads quickly. Transport becomes more expensive. Food logistics costs increase. Electricity generation becomes costlier in parts of the system that still rely on imported fuels. Manufacturers face higher input costs and businesses pass those costs on, ultimately burdening households. The result is a powerful squeeze on disposable income. For low and middle-income households, already dealing with high inflation, this squeeze is particularly painful. When families spend more on transport, food, and utilities, they cut back elsewhere. Consumption slows, businesses sell less, and economic activity weakens. Communication at a time like this is critical; citizens should hear a message that the government is working with international partners to ensure continuity of crude supplies Pakistan’s economy is especially sensitive to this dynamic because it is still largely consumption driven. When disposable income falls, money circulation across the economy slows. That slowdown eventually translates into lower GDP growth and higher unemployment. This is why energy price shocks must be handled carefully. The simplest policy response is often to increase retail fuel prices immediately and pass the full burden to consumers. However, while that approach may appear fiscally responsible, it can also be economically dangerous if done without complementary measures. Pakistan already imports roughly $17–18 billion worth of petroleum products each year. When global oil prices jump from around $75 per barrel to $95 or higher, the country’s import bill rises significantly. This creates pressure on the current account, weakens the rupee, and fuels inflation. In such circumstances, while simply raising prices is the most straightforward policy choice, it is also the least imaginative one. Periods of geopolitical disruption require strategic thinking and temporary tactical adjustments. The current volatility in global energy markets is linked to tensions in the Middle East. These disruptions may last weeks or months, but they are unlikely to last forever. The task for policymakers is to navigate this period without inflicting unnecessary damage on the domestic economy. Communication at a time like this is critical. Citizens should hear a message that the government understands the risks, has contingency plans in place, and is working with international partners to ensure continuity of supply. One of the lessons from prior global energy crises is that markets react as much to expectations as to actual shortages. When governments communicate clearly and act decisively, panic subsides. When information is scarce, rumours fill the vacuum. Ultimately, the goal is simple: prevent fear from becoming the crisis itself. Geopolitical shocks are fundamentally different from routine market fluctuations, and they should be treated as exceptional circumstances rather than business as usual. International financial partners and multilateral institutions understand this distinction in many economies around the world. Even major global powers have adopted pragmatic approaches during extraordinary situations, for example, the flexibility that allowed India to continue purchasing Russian oil during periods of sanctions and geopolitical tension. The lesson is clear: when shocks are geopolitical in nature, policy responses must also allow for practical flexibility. Presenting the current situation in that context allows room for temporary and carefully calibrated policy adjustments while maintaining long-term fiscal discipline. The first step is to optimise Pakistan’s existing energy mix; where possible, power generation should temporarily shift away from imported oil toward domestic gas, hydropower from dams, and the rapidly growing base of locally installed renewable energy. Pakistan has invested heavily in solar and other renewable capacity in recent years, and hydroelectric generation from dams remains one of the cheapest sources of electricity available. During a geopolitical oil shock, maximising these domestic energy sources can significantly reduce reliance on imported fuels. Beyond adjustments in power generation, Pakistan also has an opportunity to introduce a structural improvement in its transport fuel mix. Another practical policy lever available to Pakistan is the strategic introduction of biofuel blending in the national fuel mix. Pakistan already produces significant quantities of ethanol derived from molasses in the domestic sugar industry, creating an opportunity to partially substitute imported petroleum with locally produced fuel. Many countries, including Brazil, the United States, and increasingly India, routinely blend petrol with ethanol in the range of 10–20 per cent without requiring major changes to vehicles or fuel infrastructure. Introducing a structured national programme with blends of around 10–15pc could meaningfully reduce the volume of imported petroleum required for domestic consumption. At Pakistan’s current fuel consumption levels, even a 10–15pc blending programme could potentially reduce the national oil import bill by several hundred million dollars annually. Such a policy would deliver multiple benefits simultaneously. It would reduce pressure on the current account by lowering oil import volumes, help moderate retail fuel prices by incorporating competitively priced domestic ethanol, and stimulate agricultural and industrial value chains within the country. Most importantly, ethanol blending would convert the lessons of a geopolitical oil shock into a long-term structural reform, gradually insulating Pakistan’s economy from external energy disruptions while strengthening domestic energy security. Industries and power plants capable of switching from furnace oil to gas should be encouraged to do so on a temporary basis where capacity exists. Even a modest shift in energy consumption could reduce the national oil import bill during periods of high global prices. The second step is energy demand management. Governments around the world adopt short-term conservation measures during global energy disruptions. Reducing non-essential fuel consumption across government fleets, encouraging efficiency in transport systems, and optimising logistics can collectively reduce demand without slowing productive sectors of the economy. For step three, policymakers must protect the sectors that generate growth and foreign exchange. Export industries, agriculture, and logistics networks must remain fully supported. These sectors drive employment and economic activity, and they should not be constrained during a temporary energy shock. Finally, the government should focus on protecting disposable income for low and middle-income households. If purchasing power erodes further, the consequences ripple across the entire economy. Reduced spending leads to slower business activity, higher unemployment, and weaker GDP growth. Pakistan’s economy cannot afford such a contraction at a time when growth is already fragile. In the end, energy crises often reveal an important truth: economic resilience is not simply about having resources. It is about using them intelligently when circumstances change. The writer is the Director of Gul Ahmed Textile Mills Ltd. Published in Dawn, The Business and Finance Weekly, March 16th, 2026
DawnMarch 16, 2026 at 04:58 AM UTCDealing with vulnerabilities
EVERY crisis presents an opportunity to reflect upon underlying weaknesses and take corrective action. The current turmoil in the Gulf should be examined from this angle. It highlights long-existing vulnerabilities in Pakistan’s economic structure that haven’t always received adequate policy attention. The situation is particularly significant as it coincides with a broader transformation in the global economic environment. For several decades, the world economy that functioned within a relatively liberal trading system has been giving way to rising protectionism, economic nationalism and inward-looking policies. For countries like Pakistan, which rely heavily on international trade, remittances and external financial flows, the shift brings a new layer of uncertainty. Since the war’s duration and reopening of the Strait of Hormuz are uncertain, any assessment must be tentative. However, there are at least five major channels through which the situation could affect our economy. First, the most immediate impact is through higher oil prices. Disruptions to shipping routes, higher war-risk premiums and potential interruptions in oil and gas supplies have already pushed global energy prices upward. These increases have begun to be reflected in domestic petroleum pricing. Higher fuel prices translate into higher inflation — transportation costs rise and prices of imported inputs used in production and distribution also increase. Passing these higher costs on to consumers is politically unpopular but economically unavoidable. We simply don’t have the fiscal space to finance large subsidies to keep domestic prices artificially low. Such subsidies will widen the fiscal deficit and risk derailing the IMF programme, creating more economic instability. Pakistan must move towards a fully deregulated petroleum pricing system by making daily price adjustments to reflect global market movements, reducing distortions and removing criticism that governments manipulate prices for political reasons. In the immediate term, diesel supplies for the wheat harvest must be ensured. But deregulation must be accompanied by institutional safeguards. Strategic oil reserves must be built to cushion temporary supply disruptions, while oil marketing companies should be required to maintain at least a month’s stock. The regulator must be vigilant to prevent profiteering or cartel behaviour. Policy reforms can plug the structural economic gaps exposed by the Gulf conflict. While exploring other shipping routes, domestic energy production must be strengthened by increasing gas production to compensate for potential disruptions in RLNG cargoes, implementing the long-delayed upgradation of domestic refineries, incentivising oil and gas companies to intensify exploration in new blocks without needing multiple approvals from the petroleum ministry at each stage. Expanding transmission networks to evacuate electricity from Thar coal and wind power projects, along with constructing the Lahore-Peshawar oil pipeline, would gradually reduce reliance on imported fuel. Second, higher oil prices will place more pressure on Pakistan’s external current account. Pakistan produces only about one out of every 10 barrels of oil it consumes; the remaining are imported. If global oil prices fluctuate around $100 per barrel, our petroleum import bill could rise by an additional $3-4 billion over the year, widening the trade deficit and intensifying pressure on foreign exchange reserves. Exports may also suffer. Higher freight charges, insurance premiums, supply chain disruptions, operational constraints faced by Dubai’s Jebel Ali port and closure of regional airports and shipping routes could slow cargo movement. Moreover, several imported industrial inputs derived from petroleum, such as synthetic fibres, chemicals and fertilisers, would become costlier. The combined effect of higher energy prices, rising freight costs and supply disruptions could reduce export profitability at a time when export performance is already sluggish. To mitigate these effects, the government should consider targeted grants from the Export Development Fund, concessional pre- and post-shipment financing, export insurance schemes and rebates on local taxes. Energy pricing for export-oriented industries must be predictable and competitive. Simplifying the export tax regime, expeditious refunds and restoration of the Export Facilitation Scheme to its original form while penalising misuse would not only provide short-term relief but also boost export competitiveness in the long run. Third, the war could affect remittances — a vital pillar of our external stability. They have grown from about $1bn in 2000 to an expected $42bn in 2025-26 and play a crucial role in financing the trade deficit, servicing external debt and supporting domestic consumption. Most remittances originate from Gulf states where Pakistani workers form a significant share of expat labour. The outlook for remittances will depend largely on how Gulf economies respond to the war. If instability persists, investment and tourism activity could slow, reducing job opportunities for migrant workers. Conversely, higher oil prices could generate windfall revenues for Gulf states, enabling greater spending on infrastructure and economic expansion, which may increase demand for foreign labour. Pakistan should thus invest in technical skills, vocational trades and specialised services for its migrants, allowing workers to compete more effectively in labour markets abroad. Fourth, our balance-of-payments position has been supported by deposits from Saudi Arabia and UAE, along with oil-financing facilities. But relying on such deposits exposes us to rollover risk. Given the windfall Gulf economies may receive from higher oil prices, we should renegotiate these arrangements, proposing conversion into equity investments in strategic projects such as oil refineries and petrochemical complexes, while others could have their maturities extended to reduce short-term repayment pressures. Sovereign wealth funds in Saudi Arabia, UAE, Qatar and Kuwait could use some of the windfall gains for FDI in Pakistan. Finally, domestic fiscal discipline must remain a priority. Non-development expenditure should be reduced further and the savings generated, increased collection of provincial taxes and bringing traders into the tax net could be used to abolish super tax and reduce taxes on the salaried class and industry; it will stimulate private sector activity, improve business confidence and retain talent. Pakistan should engage with the IMF as these external shocks necessitate revision of performance criteria due to deviation from the original assumptions upon which these were based. In sum, while the present crisis exposes several structural vulnerabilities in Pakistan’s economy, it also offers an opportunity to address these weaknesses through prudent policy reforms. By strengthening energy security, improving export competitiveness, upgrading labour skills, attracting foreign investment, and maintaining fiscal discipline, Pakistan can build buffers to face future external shocks and transform a period of uncertainty into a catalyst for long-term economic resilience. The writer is a former governor of the State Bank of Pakistan. Published in Dawn, March 14th, 2026
DawnMarch 14, 2026 at 04:36 AM UTC