Pakistan forms committee to tackle possible economic fallout of Israel-Iran conflict — adviser

Arab News

8 hours ago

ISLAMABAD: Prime Minister Shehbaz Sharif has formed a high-level committee led by the finance minister to monitor any possible economic impact of the escalating conflict between Israel and Iran, a senior government adviser said on Sunday, as rising oil prices threaten to add new pressure on the South Asian nation's fragile economy.
Oil prices have climbed about 7 percent since Friday, with Brent crude closing at $74.23 a barrel after hitting a session high of $78.50, amid fears of supply disruptions if Middle East tensions escalate further.
'The prime minister has constituted a committee under the supervision of the finance minister, which will monitor the situation,' Khurram Schehzad, an adviser at the finance ministry, told Arab News.
'The committee will assess the impact of the changes and volatility in oil prices on fiscal and external sides, and devise a strategy to pacify the impacts on Pakistan's economy.'
Pakistan relies heavily on imported oil, and any sustained spike in prices could widen its current account deficit and push inflation higher at a time when the country is struggling with low foreign reserves and slow growth.
Israel and Iran launched fresh attacks on each other overnight into Sunday, killing scores. The conflict started on Friday when Israel launched a massive wave of attacks targeting Iranian nuclear and military facilities but also hitting residential areas, sparking retaliation and fears of a broader regional conflict.
A 909 kilometer (565 mile) long international boundary separates Iran's southeastern Sistan-Baluchestan province from Pakistan's southwestern Balochistan province.
'Israel-Iran conflict presents complex challenges for Pakistan as rising oil prices may increase import costs and inflation, influencing monetary policy and growth, while disruptions to key routes like the Strait of Hormuz can affect energy supplies and critical projects,' said Khaqan Najeeb, an economist and former finance ministry adviser.
'It can potentially affect consumer purchasing power and production costs ... Possible disruptions to shipping routes and higher freight charges might result in delays to imports and exports, thereby exerting additional pressure on Pakistan's external sector.'
DIPLOMATIC BALANCING
As the crisis deepens, analysts widely believe Islamabad should maintain 'careful diplomatic balancing' between its ties with Iran and its other partners in the Gulf, as well as the United States.
'Diplomatically, Pakistan has to navigate a balanced and principled stance, honoring its historic ties with Iran alongside its strategic relationships with the US and Gulf partners, emphasizing dialogue and regional stability.'
Former Defense Secretary Lt Gen (retired) Naeem Lodhi said Israel was unlikely to target Pakistan directly but an expanding conflict could complicate matters for Islamabad, adding that it should remain vigilant but avoid 'deeper' involvement.
'If the war expands to include more Middle Eastern countries, some of which are friendly to Pakistan, then it would be a difficult proposition for Islamabad... whose side it takes,' Lodhi added.
Former Foreign Secretary Aizaz Ahmed Chaudhry said Pakistan would respond 'forcefully' if directly targeted.
'Israel knows that Pakistan has the capacity to hit back hard,' Chaudhry said, referring to a May 2025 military confrontation with India in which Islamabad retaliated to New Delhi's strikes, taking down fighter jets and hitting airfields, air bases and other military facilities.
Pakistan's former ambassador to Iran, Asif Durrani, warned that the crisis could spill over if not contained.
'Not only Pakistan, but the entire Middle East and North Africa (MENA) region can be engulfed if the ongoing spat between Israel and Iran turns into an all-out war,' Durrani said.
However, he said the likelihood of a refugee crisis was limited unless the conflict escalated into a ground invasion.
'A refugee influx is possible if it becomes a full-fledged war, but Israel or the United States are unlikely to commit boots on the ground in Iran,' Durrani added.
Qamar Cheema, executive director of the Sanober Institute think tank, said Pakistani security forces should increase patrols and surveillance in border districts as the conflict could impact militant groups operating along the Iran-Pakistan border region, such as Baloch separatists and other sectarian outfits.
'Whenever such a situation arises, separatist and sectarian outfits often try to take advantage of it, either by increasing their activities or by shifting them from their hideouts inside Iranian territories,' he said.
'Their movement is likely to intensify if the threat reaches the border region.'