Pakistan's Perfect Storm
How five simultaneous shocks, from a closed strait to an active war on the west and borrowed oil deposits, threaten an economic collapse and what we need to urgently do to avoid that.
Yesterday, on March 6, the Federal Government of Pakistan effectively put contingency measures in place following the declining oil and gas supplies. Petroleum sales are now capped to PKR 3000 or ~12 litres per vehicle (I’m assuming per day as there was no clarity on the duration). The price of petroleum products was also increased by PKR 55 per litre near midnight - the effects of which on inflation, and price of goods, we’ll get to see in the coming days.
I had anticipated this and gotten all my vehicles filled a day prior. But that’s not the point of this post.
It is the 28-day clock.
Pakistan's petroleum stocks are expected to run out in 28 days. That is not a figure of speech. The government told the Senate Standing Committee on March 4 that the country holds 28 days of commercial fuel reserves and has no strategic petroleum reserve at all, despite a 1983 Federal War Book requirement for 45 days and a 2006 policy calling for 60. Neither was ever implemented. These numbers are clarified by industry officials and media analyses that the 25–28 days of stocks held in-country are commercial reserves (held by OMCs/refineries), not a government-controlled strategic buffer.
Brent crude closed at $92.69 on March 6, up 27 percent from its pre-strike level of $73 on February 27. Pakistan imports 80 to 85 percent of its oil through the Strait of Hormuz. Iran has closed the strait.
The closure comes at a time when the Pakistan Air Force is running active combat operations against Afghanistan under Operation Ghazab lil-Haq, consuming jet fuel from those same commercial stocks. It also does when India has upgraded diplomatic ties with the Afghan Taliban at the exact moment Pakistan is at war with it.
Another example of why Pakistan unfortunately never catches a break. Five shocks, arriving at once, and hitting an economy actual reserve buffer is approximately $3.5 billion once you subtract $12.5 billion in borrowed bilateral deposits. To put the figure in perspective, the reserve buffer is equivalent to approximately three-days’ revenue of Aramco and Apple, or what Amazon makes in about two days.
The combined current account shock from higher oil costs and possibly declining remittances falls somewhere between $4 billion and $10 billion this fiscal year. That range is wide because duration matters more than any other variable. Every week the Hormuz closure holds, Pakistan's position deteriorates in ways that are not linear.
The oil shock is confirmed. The question is how bad it gets.
Goldman Sachs projects Brent reaching $100 within five weeks of sustained disruption. JP Morgan puts the range at $100 to $120 if closure extends beyond three weeks. Wood Mackenzie models $125 to $150 for prolonged blockage. Qatar's Energy Minister told the Financial Times crude could hit $150 in the coming weeks. The analyst consensus has moved here.
Pakistan's FY25 petroleum import bill was $16 billion, with crude oil specifically at $11.3 billion. At a 20 percent price increase from the $90 baseline, the additional annual cost runs $3.2 to $4.2 billion. At 30 percent above baseline, the range is $4.6 to $6.3 billion. These figures assume no reduction in import volumes, which is optimistic given rationing already visible in the government's work-from-home directives.
A one-month crude disruption at current prices consumes roughly half of Pakistan’s usable reserve buffer. The IMF reserve target of $17.5 billion by June 2026 assumed these deposits held and inflows remained stable. Both assumptions are now under pressure.
Remittances face a shock that past precedents understate, and exports face a second one on top of it.
Pakistan’s FY26 remittance projection sits at $41 to $42 billion, with Gulf countries contributing 54.6 percent of FY25 inflows. Saudi Arabia sent $9.35 billion. The UAE sent $7.87 billion. A 10 percent decline in Gulf inflows costs $2.2 billion. A 15 percent decline costs $3.3 billion.
Three precedents offer partial guidance.
During the 1990 Gulf War, remittances held because most Pakistani workers were in Saudi Arabia and the UAE, and Pakistan joined the coalition.
During COVID-19, remittances rose as workers shifted to formal banking channels.
During the 2015 to 2016 oil price crash, Gulf remittances declined 5 to 6 percent with a 6 to 12 month lag.
Each of those cases involved Gulf economic stress that stopped short of attacking Gulf infrastructure directly. Iranian drones struck Saudi Aramco’s Ras Tanura refinery this week. Qatar halted LNG production after attacks on Ras Laffan. The construction and services sectors where Pakistani workers concentrate now face genuine economic contraction. A 6 to 12 month lag assumes a slow-moving price shock. Physical damage to Gulf production capacity moves it faster.
The textile sector, at $17.9 billion and 56 percent of merchandise exports, faces a freight shock on top of the remittance pressure.
Freight costs on major routes could surge 300 percent. A 40-foot container normally costs $2,000 to ship to Rotterdam, 4 to 8 percent of FOB value. At 300 percent above normal, freight reaches $8,000, pushing the freight-to-FOB ratio to 16 to 32 percent. APTMA data suggests Pakistani textiles lose price competitiveness above 10 to 15 percent.
Pakistan’s competitors absorb little of this.
Vietnam ships from the Pacific. Bangladesh uses Bay of Bengal ports with limited exposure. India’s east coast ports in Chennai, Visakhapatnam, and Kolkata sit entirely outside both the Hormuz and Suez disruption zones. Pakistani exporters absorb all of the headwinds that their competitors largely avoid.
The Afghan war and the fuel shortage are drawing from the same pool.
The fuel running Operation Ghazab lil-Haq comes from the same 28-day commercial stocks available to 220+ million civilians. Pakistan is operating ~300 plus combat aircraft, each consuming 800 to 1,000 gallons per hour in active operations. Armored formations engaged on the Western front also come with significant fuel costs.
In 2023, the Pakistan Army suspended all military drills because of fuel shortages. Amidst active combat operations against Afghanistan, Pakistan faces same supply constraint but far greater operational demand. The $9.04 billion defense budget, up 20 percent this year, combined with $25.8 billion in external debt servicing, consumes virtually all federal revenue.
Three scenarios, and why the government is only preparing for one.
Full Hormuz closures have historically never lasted more than days, even during the 1980s tanker war. The base rate for blockage sustained beyond 30 days is low. The implied probability of closure beyond 60 days, based on options markets and prediction platforms as of March 6, sits below 25 percent. Multiple sources report low-level US-Iran backchannel signaling, which is inconsistent with prolonged closure as a stable equilibrium.
Three scenarios are worth preparing for.
In the first, disruption lasts two to four weeks before partial normalization.
In the second, it runs two to three months with episodic tanker passage.
In the third, closure becomes semi-permanent at six months or more.
Iran has not attacked Yanbu loading infrastructure, which would make quick resolution far less likely. The apparent existence of US-Iran back-channel communication makes prolonged closure a less stable outcome.
Pakistan’s current response covers scenario one adequately. The monitoring committee under Finance Minister Aurangzeb is meeting daily. Petroleum Minister Ali Pervaiz Malik secured a crude supply assurance via Yanbu, with one vessel confirmed. Pakistan raised petrol and diesel prices by Rs 55 per liter on March 6 and shifted to weekly pricing. OGDC is preparing to raise domestic crude output 14 percent to roughly 40,000 barrels per day.
Scenarios two and three require moves the government has not yet made.
Protection & Indemnity (P&I) players have withdrawn war-risk coverage entirely for Hormuz transits. Without coverage, no commercial tanker captain sails through the strait regardless of price.
Pakistan can negotiate directly with Lloyd's of London for a government-backed war-risk indemnification facility. The UK government did this during the Falklands War. Japan and South Korea are already exploring a joint Asian war-risk pool in response to the current crisis. Pakistan has standing to join that conversation and should be in it within days. This path to resumed tanker traffic is faster than waiting for a diplomatic resolution.
The SBP-PBoC renminbi swap facility, worth approximately $4.5 billion, has never been used for petroleum procurement. Pakistan could pay for Chinese-sourced crude and Russia-via-China oil in renminbi, preserving dollar reserves for IMF program targets. India used rupee-based oil payment mechanisms with Russia starting in 2022. Pakistan has the same option through SBP's existing swap line. The question is whether finance ministry staff are making that call this week.
On remittances, Pakistan is leaving a multi-billion-dollar FX buffer on the table by treating overseas Pakistanis only as monthly remitters, not as long-term investors. Pakistani bank branches in Saudi Arabia and the UAE need to act fast and immediately launch 3‑year sovereign diaspora bonds at 6–7 percent, giving Gulf workers a simple, higher-yield way to park their savings in Pakistan rather than in offshore accounts. Bangladesh’s 2020 wage-earner bonds showed this model works: the investor base exists, the risk is understood, and the structure is straightforward. What is missing is urgency and political will.
On textiles, SBP will need to open a freight-shock working capital facility where confirmed export purchase orders serve as collateral for 90-day financing at below-market rates. With 15 to 20 additional transit days per shipment, exporters face a working capital gap that pushes them toward accepting order cancellations. Cancellations in textiles tend to be permanent because buyers move to suppliers who can deliver on schedule and rarely return. Acting before factories start cutting shifts is what separates a temporary revenue dip from a lasting loss of market share.
Gwadar cannot substitute for Hormuz, and the government has not said so publicly.
Against these practical moves, the government announced a different kind of solution. Maritime Affairs Minister Junaid Anwar Chaudhry convened a meeting on March 5 positioning Gwadar as a regional transshipment hub. The optimism around Gwadar masks structural gaps that cannot be closed on a crisis timeline.
Gwadar’s berths handle vessels up to 30,000 DWT. Supertankers carrying Gulf crude are 300,000 DWT. No pipeline connects the port to Pakistan’s inland refining system. Meaningful energy transit capacity is five to ten years away at minimum, requiring billions in investment that CPEC Phase 2 has not provided. China shifted to a multilateral consortium model for the $6.8 billion ML-1 upgrade during PM Shehbaz Sharif’s September 2025 Beijing visit. FDI fell 43 percent in H1 FY26 to $808 million. Balochistan saw 254 terrorist attacks in 2025, a 26 percent increase year on year. These are not signals of a port ready to absorb redirected global energy flows. The conversation about what Gwadar realistically can and cannot do needs to start at the decision-making level, and it has not.
Three variables will determine whether this is managed or repeated
This same pattern has played out before. The strategic reserve was discussed in 1983. A government-backed insurance facility was discussed. Activating the swap lines was discussed. None of it moved. Pakistan now faces a six-week Eurobond deadline and a virtual IMF review with the same structural gaps it chose not to close over four decades. The recursive loop is visible.
Pakistan’s $1 billion Eurobond matures in April 2026, six weeks from now. The rupee, stable at PKR 278 to 280 since the EFF approval, faces pressure proportional to how long the Hormuz closure holds. Three variables determine the outcome: how long Hormuz stays closed, whether Saudi Arabia can load enough vessels through Yanbu to cover Pakistan’s monthly demand, and whether China and Saudi Arabia roll their bilateral deposits at the next maturity window.
Securing the renminbi swap activation, Yanbu loading guarantees, and deposit rollovers within ten days is what a managed outcome looks like. Missing that window before the April Eurobond wall and the virtual IMF review produces something closer to 2022, without the runway Pakistan had then to arrange a program from scratch.