The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas, U.S., November 22, 2019. Picture taken November 22, 2019. REUTERS/Angus Mordant
The recent surge in oil prices due to the Israel-Iran conflict poses a risk to Pakistan’s trade and fiscal stability, according to a note by a brokerage house.
In its note, Ismail Iqbal Securities highlighted that oil prices have surged sharply as the Israel-Iran conflict enters its seventh day, with crude benchmarks gaining strong upward momentum.
As of June 19, WTI is trading at $76.42, Brent at $77.62, and Arab Light at $76.31. A notable jump from early June levels of $60-63 per barrel. This rally reflects the growing geopolitical risk premium, driven by the potential for a major disruption in global energy supplies, the note said.
It noted that Iran, the third largest oil producer within OPEC, currently extracts around 3.3 million barrels per day (bpd). According to Reuters, between 18 and 21 million bpd of crude and refined products pass through the Strait of Hormuz daily, a vital transit route along Iran’s southern coastline. With conflict escalating, markets are increasingly pricing in the risk of disrupted oil flows from the region.
For countries heavily reliant on energy imports, like Pakistan, this surge in oil prices presents growing economic challenges.
In 11MFY25, Pakistan’s petroleum imports totaled $14.6 billion, accounting for 27 percent of the country’s $53.5 billion total import bill. The earlier period of subdued oil prices had helped ease external pressures, but the current rally threatens to reverse that trend.
A sustained $5/barrel increase above the trailing twelve-month average could raise Pakistan’s annual petroleum import bill by approximately $1 billion. While the country posted a current account surplus of $1.8 billion during 11MFY25, supported by strong remittances, this buffer remains modest and vulnerable to external shocks.
“As oil prices continue to climb, the risk to Pakistan’s trade and fiscal stability grows, making the trajectory of the Middle East conflict a key factor in the country’s near-term economic outlook,” the firm said in its note.