Global oil markets have already begun to register the first tremors of the conflict. Within days of the escalation, Brent crude surged from roughly $70 per barrel in early February to around $90 by early March 2026, a rise of nearly 25 per cent. Such rapid price spikes represent classic geopolitical supply shocks, where the mere risk of disrupted tanker routes or damaged Gulf infrastructure forces markets to reprice energy almost instantly. For energy-importing economies like Pakistan, the consequences begin not on the battlefield but in the balance of payments.
Wars in the Middle East rarely remain confined to their borders; as witnessed during the 1973 Arab oil embargo and the 1990 Gulf War, regional conflicts swiftly reverberate through global energy markets and distant economies. The latest US–Israeli assault on Iran in February 2026, accompanied by retaliatory strikes and blockade of the Strait of Hormuz, has once again jolted oil markets and maritime trade, sending shockwaves across commodity exchanges and freight insurance systems.
Oil markets, notoriously sensitive to geopolitical risk, have reacted swiftly. Roughly a 25 per cent increase within weeks as traders priced in the risk of shipping disruptions, tightening sanctions and possible damage to Gulf infrastructure. Tanker premiums have climbed, war-risk insurance has multiplied, and shipping companies have begun diverting vessels away from contested waters.
The effects extend beyond crude oil alone. Global gas markets, fertiliser supply chains and petrochemical exports are already reflecting heightened volatility as uncertainty spreads across energy trade routes.
The ongoing US-Israel-Iran conflict means higher oil prices, volatile LNG markets, transport inflation and uncertainty in cross-border electricity supplies
For Pakistan, a country deeply dependent on imported fuels, the consequences are immediate and severe. As a net energy importer reliant on Gulf suppliers for more than 80pc of its crude oil and nearly all of its liquefied natural gas, Pakistan’s economic stability becomes vulnerable whenever turmoil grips the region. Higher oil prices threaten to widen the current account deficit, accelerate imported inflation and strain fiscal resources already constrained by the country’s $7 billion programme with the International Monetary Fund. Energy imports consistently represent the largest component of Pakistan’s import bill, meaning that every surge in global prices quickly translates into macroeconomic stress.
Firstly, the transportation sector becomes the most immediate casualty of such shocks. Road transport accounts for the largest share of Pakistan’s petroleum consumption, with diesel powering freight corridors that connect farms, industrial centres and ports. Because nearly all petroleum products are imported, global price fluctuations transmit directly into domestic costs. The estimates show that a $10 increase in oil prices can inflate Pakistan’s annual import bill by approximately $1.5–$2bn. With Brent crude hovering near $87 per barrel, freight costs are rising, cascading into higher food prices, construction expenses and logistics costs. Export sectors such as textiles and agriculture also face shrinking margins as transportation costs climb.
Secondly, Pakistan’s power sector faces a parallel shock through liquefied natural gas (LNG) markets. Over the past decade, LNG imports have become central to the country’s electricity generation strategy. Combined-cycle power plants were built to replace furnace oil generation, but this transition also tethered Pakistan’s electricity system to volatile global gas markets.
As Asian LNG spot prices rise amid regional uncertainty, generation costs for gas-fired plants increase once again. Although long-term supply agreements with Qatar offer partial insulation, these contracts remain indexed to international price benchmarks and shipping costs. Higher fuel costs eventually feed into electricity tariffs, aggravating Pakistan’s persistent circular debt in the power sector and placing additional pressure on households and industries.
Thirdly, geopolitical escalation threatens Pakistan’s limited but strategically significant electricity trade with Iran. Cross-border transmission lines currently supply roughly 100 megawatts of electricity to districts in Balochistan, including the port city of Gwadar. For communities historically underserved by the national grid, this electricity represents a vital lifeline. However, intensified sanctions, infrastructure disruptions or political pressures could easily interrupt these supplies. Such disruptions would deepen energy deprivation in already fragile regions and highlight the vulnerability of cross-border energy arrangements in geopolitically volatile environments.
The debate surrounding the proposed Gwadar coal power plant further illustrates these vulnerabilities. Originally conceived as a 300-megawatt imported coal facility under the China–Pakistan Economic Corridor framework, the project increasingly appears economically outdated. An imported coal plant would lock Gwadar into long-term fuel imports, foreign exchange exposure and maritime supply risks, precisely the vulnerabilities now being exposed by the Gulf conflict.
Given Gwadar’s strong solar irradiance and relatively modest electricity demand, a more rational pathway would be to repurpose the project toward utility-scale solar generation supported by Battery Energy Storage Systems (BESS). Such a configuration would deliver reliable electricity without fuel imports, reduce exposure to maritime disruptions and position Gwadar as a model for clean port-city development.
Fourthly, amid these vulnerabilities, Pakistan’s rapidly expanding solar sector offers an unexpected strategic cushion. Over the past several years, households and businesses across the country have quietly installed rooftop photovoltaic systems to hedge against rising electricity tariffs and unreliable grid supply.
By 2026, distributed solar capacity, both off-grid and net-metered, is estimated to have reached nearly 18 gigawatts. This transformation has largely been driven by private investment financed through remittances and household savings rather than state-led programmes. Its strategic significance is profound. Unlike oil shipments navigating contested waterways, solar electricity originates within national borders and remains immune to geopolitical chokepoints.
Fifthly, a solar-dominated energy system, however, requires a different form of resilience. Traditional hydrocarbon systems relied on stockpiles of crude oil and petroleum products stored in tanks and strategic reserves. Renewable electricity systems instead depend on storage infrastructure such as batteries, pumped hydro and flexible grid management. Grid-scale BESS therefore become the renewable equivalent of strategic petroleum reserves. By storing excess solar generation during daylight hours and releasing it during evening demand peaks, storage systems can stabilise electricity supply while reducing reliance on imported fuels.
Finally, demand-side management represents an equally important pillar of energy security. Smart metres, time-of-use tariffs, efficient appliances and industrial load management programmes can significantly reduce peak demand and improve system efficiency. In periods of volatile fuel markets, managing consumption can be as effective as expanding supply.
The ongoing confrontation between the United States, Israel and Iran demonstrates once again how regional conflicts reverberate across distant economies. For Pakistan, the risks are unmistakable: higher oil prices, volatile LNG markets, transport inflation and uncertainty in cross-border electricity supplies.
However, crises also illuminate strategic choices. Expanding solar energy, investing in electricity storage and strengthening demand-side efficiency can gradually reduce Pakistan’s exposure to imported hydrocarbons.
In the evolving energy landscape of the 21st century, sovereignty will increasingly depend not on control of oil routes alone but on the resilience of national electricity systems and the capacity to generate power from resources that no geopolitical conflict can blockade.
The writer has a doctorate in Energy Economics and serves as a research fellow in Sustainable Development Policy Institute.
Email: khalidwaleed@sdpi.org
Published in Dawn, The Business and Finance Weekly, March 9th, 2026
