Prolonged Israel-Iran conflict could derail Pakistan’s economic stability

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LAHORE: If the Israel-Iran conflict continues and global oil and shipping prices are high, Pakistan’s economy may face external shocks.

Such a growth can change the expected results of taxes such as understanding the budget, implementing its implementation, and the taxes such as petroleum development levy and the proposed climate tax. It seems to depend on the budget to meet economic estimates, including economic estimates, financial losses and trade gaps in international oil prices that are stable or slightly declining.

Permanent rise in global oil prices- possibly pushing Brent raw at a barrel or more at $ 90- $ 100 will increase the cost of imports, reduce the value of the rupee and risk fuel subsidy forecasts. This scenario will also distort the expected import bill and inflation and interest rates will be badly affected. The State Bank of Pakistan, in the announcement of its latest monetary policy on Monday, chose to keep the policy rate 11 %, despite the first expectations of a reduction in the Middle East tension.

The proposed increase in petroleum levy – from Rs 60 to Rs 100 per liter – will be politically difficult to implement. Even without this increase, a combination of rising oil prices and a weak rupee can see petrol and diesel prices climbing Rs 310-330 per liter. With the increase in full revenue, prices may exceed Rs 350 per liter, which potentially mobilize public reactions and protests, especially from the transport sector. This will potentially boost inflation spiral, as high fuel prices spread through a wider economy.

The government may be forced to stage in the petroleum levy or forced to delay it completely, depending on how the oil markets develop in the coming weeks. Meanwhile, 2.5 % climate tax on electricity and other items – an indirect and reactionary move – will further increase the costs of utility. After the energy prices are already raised, the rise in oil and gas will result in an increase in the burden by any additional pass, which will speed up the burden and reduce the crisis of circular debt. Although the government can still move forward with these projects, the pressure of industry groups and political allies can lead to amendments or delays, especially if international energy prices remain high.

An expansed dispute will increase imported oil and LNG prices, and despite the current rigorous financial stance, inflation will withdraw into double digits. If financial measures like Petroleum Levy are brought back under political pressure, a reduction of taxes can force the government to borrow more or delay development costs. In such a scenario, the IMF can insist on alternative tax measures or deductions in costs to ensure that the targets are on track.

Even if the Israeli-Iran conflict does not rise in a full-scale war, severe tensions can have a significant impact on commodity prices for another week. Iran controls access to the Strait Harmos, which through about 20 % of the global oil supply passes. This square point has introduced “Risk Premium” in the future of oil. If stress is intact, prices such as missile strikes, tanker tours, or shipping barriers may increase by $ 3- $ 10 a barrel.

As an important OPEC+ Member, any barrier to Iranian oil exports – whether through conflict or renewal of US sanctions – will further tighten the supply globally. If utensils face greater risks in the bay, LNG delivery from Qatar may also be affected. Meanwhile, gold and silver generally benefit from growing demand during geographical political uncertainty.

This conflict can also damage investors to hunger, which can cause weak prices of commodities such as copper, aluminum and zinc, especially if global economic slowdown becomes a concern. However, obstacles in the short -term supply chain can create prices in some industrial content.

Although Iran and Israel are not major exporters of food grain, any barrier to shiping ships through the Mediterranean or the Strait of Hormuz can increase the cost of freight globally, which increases the prices of commodities such as grain, sugar and edible oil. Countries like Pakistan, India and China depend on shipping routes and changes in insurance premiums, can see palm oil, wheat and pulses prices. Industrial raw materials – including petrochemicals and fertilizers – will also face up -to -date pressure due to input cost costs.