A prolonged conflict in the Middle East could intensify economic pressures on Pakistan by keeping global energy prices high, increasing import costs, and putting further strain on the country's external financing and 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 - which began on February 28, 2026, when the United States and Israel launched coordinated strikes against Iran - has heightened risks to global energy supplies and prices, with Pakistan particularly exposed because of its reliance on imported petroleum and gas. Tehran responded with retaliatory attacks against Israel and US assets in the region as tensions escalated across the Middle East, disrupting shipping through the Strait of Hormuz.
According to the World Bank's report, Pakistan's petroleum and gas products accounted for around one-quarter of the country's total imports in fiscal year 2025, equivalent to 3.7% of gross domestic product (GDP), while Gulf Cooperation Council countries supplied around 80% of these imports. The report said that Pakistan's petroleum import group increased by 9.2% year-on-year during January-June 2026, while the import bill for crude petroleum surged by 46.4% over the same period.
By the end of June 2026, oil and liquefied natural gas prices had risen significantly compared with pre-conflict levels, threatening fiscal stability. The World Bank warned that a longer or more intense conflict could sustain elevated energy prices, widen the current account deficit, and put additional pressure on foreign exchange reserves.
Separately, the World Bank warned that a stronger-than-expected El Nino could threaten Pakistan's agricultural output and broader economic growth. The World Bank's baseline projection puts real GDP growth at 3.8% in FY2027, though agricultural disruptions could shave off crucial points.
Under the crop-output scenario described in the report, zero growth in crop output could reduce overall growth by 0.2 percentage points to 3.6%.