Situationer: How US-Iran peace can help steady Pakistan’s ship

MINUS the nuts and bolts, it appears as if the US and Iran have reached an agre­ement to end the Mideast war that has proven ruinous for the world’s economy. For now, Pakistan’s slow slide back into macroeconomic decline appears halted, with the new budget offering a glimmer of hope amid renewed geopolitical stability.

That is not to say that the conflict has not wrea­ked havoc. According to the IMF’s World Economic Outlook for April 2026, global growth is projected to slow to 3.1 per cent in 2026 and 3.2pc in 2027. Finance Minister Muha­mmad Aurangzeb said last week that the country is heading towards a 4pc growth rate, revised down from an earlier projection to 3.7pc.

So how will peace change the status quo, and what happens if the course is reversed?

“Do you know how to ride a bicycle?” economist Kaiser Bengali asks, wryly.

If the deal breaks down and strikes resume, not only would the Strait of Hormuz be blocked, but the Red Sea route may be as well — the port through which Saudi Arabia has redirected more than 70pc of its daily crude exports.

“Even if we are willing to pay Rs1,000 for a litre of petrol, the pumps will be empty, and people will resort to walking or cycling,” says Bengali.

In that case, all relief measures will be reversed and new taxes imposed. The current budget walks a tightrope between IMF targets — tax collection at Rs15tr, primary surplus at 2pc, fiscal deficit at 3.6pc — while offering select relief.

“Remittances have surged recently, in part because overseas Pakistanis are buying property back home as an insurance policy in case they are forced to leave the Gulf,” says Mr Bengali. This temporary spike may continue for another quarter, but remittances from regular wage earners could weaken until Gulf economies recover. Some businesses that relocated may not return, while tourism and investment could take time to normalise.

Weaker remittances, combined with budget stimulus raising the import bill, would widen the current account deficit and pressure the exchange rate. A depreciating rupee makes foreign debt servicing — 43pc of the budget — far more challenging.

Ehsan Malik, former CEO of Unilever Pakistan and chief executive of the Pakistan Business Council, warns that much of the fiscal space rests on provinces generating surpluses promised to the IMF. Missing those targets could trigger a mini-budget that, as past experience suggests, will hit captive taxpayers hardest and prove inflationary through a higher petroleum levy.

Oil prices fell on Friday to their lowest since early March, with Brent futures settling at $87 a barrel as traders grew more confident about a peace deal.

“The US has been marketing its oil and gas very actively, meeting demand otherwise served by the Middle East,” says Malik. “If the UAE continues to stay outside OPEC, it would also produce more. The additional quantity that will come into the market will depress prices, which will work in Pakistan’s favour.”

Lower oil prices mean less inflationary pressure and more room for the petroleum levy to be absorbed. The risk of falling remittances is also being mitigated by what appears to be a rapprochement between the UAE and Iran.

For Bengali, the true best-case scenario extends beyond lower oil prices. A comprehensive US-Iran agreement could eventually lead to sanctions relief, allowing Pakistan to pursue long-stalled energy cooperation with Tehran, including the Iran-Pakistan gas pipeline and expanded bilateral trade.

Hassan Bakshi, chairman of the Association of Builders and Developers, sees a silver lining in the diaspora’s renewed interest in Pakistani property. “With a 10-15 year long policy, guaranteed by legislators and without fear of harassment from the FBR, Pakistan can potentially attract billions of dollars from expats — far more than the Roshan Digital Accounts, especially since the shine is off Dubai now.” But for anyone to invest in Karachi like Dubai, he adds, the city has to offer Dubai-like policies and facilities.

Published in Dawn, June 16th, 2026 ...