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Biman Mukherji

Pakistan and Bangladesh are entering the latest phase of the US-Iran conflict with thinner cushions than many Asian economies, raising the risk that another oil shock could quickly spill into higher food, transport and electricity costs for millions of people, analysts have said.
Both economies rely heavily on imported fuel, leaving them particularly vulnerable to any prolonged spike in oil and diesel prices.
Jamus Lim, an associate professor of economics at ESSEC Business School Asia-Pacific, said both economies could face significant inflationary pressure in the near term, noting that weak inventory buffers meant the impact on domestic prices would be “relatively quick”.
Oil markets already reflect these concerns, with prices on track for their biggest monthly gain since March by the end of July, including double-digit increases in crude and products such as diesel.
Benchmark Brent crude prices were up nearly 21 per cent to US$84.85 a barrel in Asian trading on Friday afternoon, from US$70.18 on July 1, while WTI was up by around the same margin to US$81.84 a barrel over the same period.

The risks are no longer confined to Gulf shipping lanes, after a drone strike on gas vessels in Egypt’s Mediterranean port of Damietta on Wednesday added to concerns about shipping risks around the Suez Canal, one of the remaining routes for Saudi oil.
For Pakistan and Bangladesh, two governments already constrained by debt and International Monetary Fund-backed reforms, another energy-price shock could mean renewed pressure on their currencies, subsidies and public finances.
The pressure could persist if the conflict, now in its fifth month, widens further, with US President Donald Trump weighing whether to escalate attacks after Iran targeted American military installations and assets in Jordan, Kuwait and Bahrain.
In a report published on Wednesday, Oxford Economics analysts said they were concerned about emerging markets such as Pakistan Egypt, Mozambique, Nigeria and Kenya facing a mix of political and geopolitical risk, as well as high debt-servicing costs.
“In each case, debt service costs have risen sharply since 2019,” said Gabriel Sterne, head of global emerging markets, and Evghenia Slepsova, senior emerging markets economist.
According to Oxford Economics, Mozambique, Pakistan, Kenya, Ghana and Tunisia – each with thin reserve buffers – would suffer the sharpest deterioration.
“In a downside scenario in which the closure of the Strait of Hormuz continues through 2027, sovereign stress will compound through inflation, currency weakness, and financing costs,” Slepsova said.

For Pakistan and Bangladesh, the challenge is magnified by IMF-backed reform programmes that require fiscal discipline, leaving governments with less room to absorb higher energy costs through subsidies or delayed price increases.
Bangladesh faces a different but related squeeze, with domestic inflation, energy shortages, a banking crisis and international trade hurdles already weighing on the economy.
“Typically, countries prioritise debt repayments to international institutions like the IMF, but I won’t be surprised if Bangladesh in particular may be required to renegotiate for additional forbearance,” Lim said.
The most severe risk would be a prolonged disruption in the Strait of Hormuz, the key waterway between Iran and Oman through which about a fifth of the world’s oil supplies flow.
Neil Shearing, group chief economist at Capital Economics, warned in a report last month that oil markets could reach a tipping point if the strait remained closed for an extended period, with prices likely to hit US$120 per barrel or higher.
Traders are also watching supply disruptions elsewhere, including renewed interruptions to Kazakhstan-linked crude exports through the Black Sea.
The world economy was weathering the shock of the war in the Middle East with no signs yet of a global slowdown, but risks remained high, IMF chief Kristalina Georgieva said last month.

For smaller South Asian economies, however, the pressure is more immediate.
Gnanasekar Thiagarajan, founder of Commtrendz Research, said such economies were among the most vulnerable because they did not have oil reserves to shield themselves from the impact of higher energy prices.
Pakistan, which has emerged as a key mediator between the US and Iran, has as much at stake as other emerging nations in reaching a speedy resolution of the conflict, he added.
Security worries
That economic exposure has pushed Pakistan into a more delicate balancing act, as Islamabad presses for de-escalation while also strengthening security ties with Gulf states unnerved by the widening conflict.
The response reflects Pakistan’s dual role in the crisis: a country vulnerable to higher energy prices and regional spillover, but also one with long-standing military links that Gulf states are looking to leverage as they reassess their reliance on the US.
Earlier this week, Kuwaiti Foreign Minister Sheikh Jarrah Jaber Al-Ahmad Al-Sabah met his Pakistani counterpart Ishaq Dar in Islamabad. Both sides discussed stronger cooperation, including Kuwait’s ratification of a five-year defence pact.
The development comes less than a year after Saudi Arabia signed a landmark Strategic Mutual Defence Agreement with Islamabad in September last year, pointing to efforts to develop a broader security architecture across the Gulf region.

“Pakistan can offer military personnel, training, drones, air-defence support and protection for critical infrastructure at lower cost than another major Western deployment. Its long-standing relationship with Saudi Arabia also gives it credibility in the Gulf,” said Uday Chandra, a political-science professor at India’s Ashoka University.
“But Pakistan cannot replace the existing American security umbrella. It would also like to avoid getting embroiled in a war against Iran or aggravating sectarian tensions at home. Its role is, therefore, likely to be limited and transactional.”
Gulf states have long relied on the US for advanced air defence, intelligence-sharing and wider military deterrence.
Srinivasan Balakrishnan, director of strategic engagements and partnerships at the Indic Researchers Forum, said a prolonged Middle East conflict would not be in Pakistan’s interest, irrespective of any security realignment.
It could expose Islamabad to competing pressures from Washington, Tehran, Beijing and Middle Eastern capitals.
“Domestic energy shortages and border risks [of a conflict] with Iran [can] only sharpen the squeeze,” he said.


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Pakistan, Bangladesh face economic squeeze as US-Iran crisis widens

A worker refuels a vehicle at a petrol station in Islamabad, Pakistan, on Monday, amid rising fuel prices. Photo: EPA

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Vehicles wait in a queue to refuel with compressed natural gas at a petrol station in Dhaka, Bangladesh, on Monday. Photo: EPA

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Pakistan’s Foreign Minister Ishaq Dar (right) with his Kuwaiti counterpart Sheikh Jarrah Jaber Al-Ahmad Al-Sabah during a meeting at the Ministry of Foreign Affairs in Islamabad on Wednesday. Photo: Pakistan’s Ministry of Foreign Affairs / AFP

A trader monitors share prices at the Pakistan Stock Exchange in Karachi, Pakistan, on Monday.  Photo: EPA

Vehicles wait in a queue to refuel with compressed natural gas at a filling station in Dhaka, Bangladesh, on July 26. Photo: AFP

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Indian Defence Minister Rajnath Singh (centre) attends the commissioning of INS Mahendragiri in Visakhapatnam on July 11, 2026. Photo: X/RajnathSingh

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PNS Hangor arrives in Karachi, Pakistan on June 11. Analysts say the Hangor-class submarines will be “harder to find” for India. Photo: X/DGPRPakNavy

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A trader monitors share prices at the Pakistan Stock Exchange (PSX) in Karachi, Pakistan, on Monday. Photo: EPA

People line up to refuel at a petrol station in Peshawar, Pakistan, on April 25. Photo: EPA

Saudi Finance Minister Mohammed Al-Jadaan, centre, with Pakistan’s Finance Minister Muhammad Aurangzeb, left, and State Bank of Pakistan Governor Jameel Ahmad before a meeting in Washington on April 14. Saudi Arabia said it would provide Pakistan with US$3 billion to bolster its reserves after Islamabad faced pressure from a UAE loan repayment. Photo: AFP

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US Vice-President J.D. Vance (centre) walks with Pakistan’s Field Marshall Asim Munir (left) and Pakistani Foreign Minister Mohammad Ishaq Dar after arriving for talks with Iranian officials in Islamabad on Saturday. Photo: AFP/Getty Images/TNS

US President Donald Trump speaks to the members of the media outside the Oval Office at the White House on Monday. Photo: Getty Images/TNS/AFP

A vessel is seen at anchor off the coast of Oman’s Musandam province, near the Strait of Hormuz, on Sunday. Photo: Reuters

Pakistan Air Force JF-17 fighter jets perform ahead of a national day parade in Islamabad in 2024. Photo: AFP

Saudi Arabia’s Finance Minister Mohammed Al-Jadaan (centre) with Pakistan’s Finance Minister Muhammad Aurangzeb (left) and central bank governor Jameel Ahmad on Tuesday before their meeting in Washington. Photo: Pakistan’s Finance Ministry/AFP

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Another energy-price shock could mean renewed pressure on their currencies, subsidies and public finances


Another energy-price shock could mean renewed pressure on their currencies, subsidies and public finances.


Pakistan, Bangladesh face economic squeeze as US-Iran crisis widens

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Another energy-price shock could mean renewed pressure on their currencies, subsidies and public finances

Another energy-price shock could mean renewed pressure on their currencies, subsidies and public finances