Since hostilities erupted in late February 2026, the global energy market has been violently disrupted. The Strait of Hormuz, the maritime chokepoint through which roughly 20 percent of the world's oil and gas flows, has seen severe blockades, attacks on infrastructure, and frantic diplomatic maneuvering.
To understand how a geopolitical clash in the Persian Gulf dictates daily survival thousands of miles away, we have to look closely at a country closely affected by this economic fallout: Pakistan.
Chokehold on Pakistan's Economy
Pakistan currently imports about 80% of its energy requirements from the Persian Gulf. When the conflict began, the government of Prime Minister Shehbaz Sharif attempted to shield citizens from the immediate shock. By mid-March, authorities rolled out extreme conservation measures: schools were shuttered, a four-day work week was instituted for government offices, and a 50% work-from-home mandate was enforced to prevent the country's petrol and diesel reserves from running dry.
Yet, subsidies and conservation can only stretch a fractured economy so far. By July, the pressure became unbearable. The federal government handed pricing authority to the Oil and Gas Regulatory Authority (OGRA), shifting from a fortnightly to a highly volatile daily fuel pricing mechanism.
The backlash was immediate. The All Pakistan Petrol Pumps Owners Association (APPPOA), decrying the daily changes as unworkable, launched nationwide strikes that shuttered an estimated 15,000 pumps overnight.
As global oil is priced in dollars, a weakening local currency acts as a 'phantom tax,' making fuel imports more expensive even on days when global crude prices are stable
The numbers are staggering for a developing economy. Before the crisis hit in late February, petrol in Pakistan stood at Rs 266 per liter. By the time fighting peaked in April, the price surged to an agonizing Rs 458.41 per liter. While recent diplomatic memorandums and temporary ceasefires have brought prices down, the state is still levying heavy taxes to service its immense national debt.
Diesel Domino Effect: From Fuel to Food
It is crucial to understand that in an agricultural economy, fuel isn't just a transport issue—it is a food security issue. Petrol fuels the motorcycles and rickshaws of the middle and lower-middle classes, but High-Speed Diesel (HSD) is the undisputed lifeblood of Pakistan's economy.
Diesel powers the heavy transport sector, industrial power plants, and large backup generators that keep businesses running during grid outages. Most critically, it powers the nation's agriculture.
When the conflict spiked diesel prices in early spring, it directly collided with Pakistan’s massive April wheat harvest. Combine harvesters, threshers, tractors, and the freight trucks required to haul grain from rural fields to urban flour mills all run on diesel.
Because trucking costs feed into everything from flour to fertilizer, the fuel hike transmitted directly into aggressive food inflation. For a country where wheat flour is the single largest staple for the bottom two income quintiles, elevated input costs meant millions of households had their absolute last financial buffers wiped out.
Beyond Islamabad: A Global South Crisis
Pakistan’s crisis is extreme, but it is far from unique. The economic tremors of this war have exposed the fragile macroeconomic foundations of net energy importers across the globe.
In Bangladesh, which imports 95% of its oil, early spring saw petrol pumps run entirely dry despite strict rationing measures.
In Sri Lanka, a nation still recovering from its devastating 2019 economic meltdown, the government was forced to declare Wednesdays a public holiday and reinstate mandatory fuel passes just to make dwindling stockpiles last.
In Egypt, one of the most indebted economies in the Middle East, the state mandated that malls, shops, and cafes close by 9 PM on weekdays to save power, alongside painful 15% to 22% hikes in cooking gas, petrol, and diesel.
Here is a look at how those inflation rates compare across the region:
To make matters worse for these nations, geopolitical uncertainty acts like a magnet for the US dollar. As investors flee to the safety of the greenback, developing currencies depreciate sharply. Because global oil is priced in dollars, a weakening local currency acts as a "phantom tax," making fuel imports more expensive even on days when global crude prices are stable.
Inverse Economics of Conflict: Does Oil Drive the War?
When analyzing geopolitical conflict, the standard assumption is straightforward: War breaks out, supply chains break down, and oil prices shoot up as a reaction.
However, Marko Papic, chief investment strategist at BCA Research, suggests a fascinating and counter-intuitive thesis about this specific conflict: lower oil prices might actually be driving the war's escalation, rather than just reacting to it.
Papic argues that the price of crude acts as an independent variable—a leash that determines how aggressively Washington or Tehran are willing to act.
- The Aggression Zone (< $70/barrel): When Brent crude drops below $70, as it did briefly over the summer as supply fears eased, both the US and Iran feel fiscally and politically comfortable. They have room to maneuver, react to hardline domestic pressure, and engage in "kinetic action" (missile strikes and aggressive posturing) because the global economic blowback is manageable.
- The De-escalation Zone ($95 - $120+/barrel): When oil prices climb to uncomfortable levels—such as the massive spike to $126 earlier this year—domestic political pressure mounts rapidly. In the US, high gasoline prices severely threaten incumbent political standing. When the economic pain crosses this threshold, both sides suddenly find a reason to talk.
We saw this exact dynamic play out earlier this year. When crude skyrocketed, the adversaries quickly arranged a ceasefire Memorandum of Understanding (MOU) that restored 40% of the blocked oil traffic through the Strait of Hormuz. Similarly, when the squeeze was at its tightest, a backdoor diplomatic agreement suddenly allowed 20 Pakistani-flagged vessels to safely navigate the strait.
In short, when oil is cheap, bullets fly. When oil is expensive, diplomats work.
But this dynamic is wearing thin. The US has heavily depleted its Strategic Petroleum Reserves to combat price spikes over the last few years, dragging emergency stockpiles down to historic lows. Washington is effectively plumbing the bottom of its buffer capacity. The US lacks the domestic levers to artificially suppress prices again.
Vulnerability That Won't Fade
The US-Israeli war with Iran illustrates a harsh reality of the modern globalized economy. Diversification of energy sources and rerouting of shipping lanes are excellent long-term strategies, but they are utterly useless in the short term when 20% of the world's oil is abruptly taken off the market.
For policymakers in Washington and Tehran, the conflict is a high-stakes chess match of deterrence and power projection. But for the developing economies of the Global South, it is a daily fight against economic gravity. As long as nations like Pakistan remain structurally dependent on imported fossil fuels, their domestic stability will forever be held hostage by the geopolitical temperature of the Persian Gulf.