Pakistan may face a significant rise in inflation if a supply disruption occurs in the Middle East. Experts warn that any closure of the Strait of Hormuz could immediately affect oil shipments.
According to a report by the Pakistan Institute of Development Economics (PIDE), around 20 million barrels of oil pass through the strait daily. Any interruption could lead to a sharp increase in domestic oil prices, impacting the economy.
The study highlights that inflation, currently at 8.8%, could rise to 12% if a severe supply disruption occurs. Even a moderate disruption may push inflation to 10.4%, while a mild scenario could keep it near 8.8%.
PIDE estimates that Pakistan’s monthly oil import bill could increase by $384 million in the event of a disruption. Over a year, this could turn a current account surplus into a $4.6 billion deficit. Rising shipping costs, insurance, currency depreciation, and taxes may further intensify price increases.
Energy products make up 22% of Pakistan’s imports, making the country vulnerable to international supply changes. Diesel, widely used in transport, agriculture, and food sectors, is particularly critical. A supply disruption in diesel could disrupt production and logistics, affecting everyday life.
The report emphasizes the need for immediate policy actions to mitigate potential impacts. Recommendations include close monitoring of fuel pricing, securing alternative supply channels, and reducing dependency on imported oil. Improving domestic supply chains is also suggested to lessen vulnerability.
Experts warn that without proper measures, any sudden supply shock could have far-reaching effects on inflation, the current account, and overall economic stability.
Authorities are advised to remain alert to geopolitical developments in the Strait of Hormuz and prepare contingency plans. Ensuring stable oil supplies is seen as crucial for protecting Pakistan’s economy from sudden price surges.
With global oil markets already volatile, Pakistan’s economy could feel immediate effects of any interruption. Policymakers are urged to act swiftly to minimize the consequences of a potential supply disruption.
The PIDE report serves as a cautionary note, highlighting the economic risks of international supply uncertainties and the urgent need for strategic planning in energy imports.
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