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World Oil Price Volatility, Middle East Geopolitics, and Pakistans Inflation Dynamics

Author

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  • Abida Naurin

    (Pakistan Institute of Development Economics, Islamabad)

Abstract

EXECUTIVE SUMMARY: Global oil prices have been increased due to the escalation of the US-Israel war with Iran, influenced by amplified geopolitical risk around the Strait of Hormuz, a corridor which transports about 20 percent of global seaborne oil trade. Due to this uncertainty crude oil prices rise by about 30 percent in early March 2026[1], demonstrating a growing geopolitical war premium rather than purely market fundamentals. Due to heavy reliance on imported energy, Pakistan remains highly vulnerable. Petroleum products account for around 30 percent of total imports, and data-based estimates suggest that every $10 per barrel rise in the price of oil increases Pakistans annual oil import bill by almost $1.8-2.0 billion. The price shock also passes directly into domestic inflation mainly through higher transport, the prices of food and energy. A three-month closure of the Strait of Hormuz can temporarily increase global oil prices to $120-150 per barrel. Under these circumstances, monthly oil import bill of Pakistan can triple to about $3.5-4.5 billion, whereas inflation could climb toward 15% to 17% from 7% recorded in February 2026.

Suggested Citation

  • Abida Naurin, 2026. "World Oil Price Volatility, Middle East Geopolitics, and Pakistans Inflation Dynamics," PIDE Policy View Point 2026:53, Pakistan Institute of Development Economics.
    • Handle: RePEc:pid:pviewp:2026:53
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