Prolonged hostilities could raise energy import costs, widen Pakistan’s current account deficit and erode foreign exchange reserves, while El Niño poses additional risks to agricultural output and growth.
ISLAMABAD, October 22, 2026: A prolonged conflict in the Middle East could intensify economic pressures on Pakistan by keeping global energy prices elevated, increasing import costs and putting further strain on foreign exchange reserves, the World Bank has warned.
In its report, Pakistan Development Update: Attaining Escape Velocity, the World Bank identified a longer or more intense conflict as the biggest risk to Pakistan’s near-term macroeconomic outlook.
The conflict began on February 28, 2026, when the United States and Israel launched coordinated strikes against Iran, triggering retaliatory attacks and escalating regional tensions. Disruptions to shipping through the Strait of Hormuz, a vital route for global oil and gas supplies, have heightened concerns over energy security.
Pakistan remains particularly vulnerable because of its reliance on imported petroleum and gas. According to the report, these products accounted for around one-quarter of total imports in fiscal year 2025, equivalent to 3.7% of gross domestic product (GDP). Gulf Cooperation Council (GCC) countries supplied approximately 80% of these imports.
Pakistan’s petroleum import group grew by 9.2% year-on-year during January–June 2026, while the crude petroleum import bill surged by 46.4% over the same period.
The World Bank warned that sustained high energy prices could widen the current account deficit and place additional pressure on foreign exchange reserves. Disrupted trade routes, weaker export demand and higher production costs could also dampen economic activity, fuel inflation and reduce household purchasing power.
El Niño poses additional growth risks
The World Bank also cautioned that a stronger-than-expected El Niño could threaten Pakistan’s agricultural output and economic growth by disrupting weather patterns.
The report’s baseline projection puts real GDP growth at 3.8% in fiscal year 2027. However, under a scenario in which crop output records zero growth, the expansion rate could fall by 0.2 percentage points to 3.6%. This is a conditional scenario rather than the baseline forecast.
The report noted that Pakistan’s existing external buffers could help meet additional import requirements arising from an agricultural shock. However, doing so could significantly deplete foreign exchange reserves.
The warnings highlight the risks facing Pakistan’s economic recovery from external energy shocks and potential climate-related disruptions.