At a time when the global economy was already facing a crisis due to the closure of the Strait of Hormuz, the situation in the region has further intensified following the recent seizure by the Iran-backed Houthi group of Yemen’s strategically important port of Mocha and the vital island of Perim, located in the middle of the Bab al-Mandab Strait, and subsequent launch of more than 60 airstrikes by Saudi Arabia against the Houthis. Following these developments, a major maritime route for the transportation of energy supplies has come under the control of the Houthis, while the ongoing conflict between Yemen’s Saudi-backed government and the Iran-aligned Houthi group has now effectively taken the shape of a full-flash war.
The gravity of the situation can be gauged from the fact that Saudi Crown Prince Mohammed bin Salman contacted US President Donald Trump twice by telephone and requested effective and forceful action against the Houthis. However, the US president rejected the request for military action against the Houthi group. On the other hand, President Donald Trump claims that the Houthi group contacted the US administration and requested that US be left out of the conflict, while assuring that there would be no restrictions on the passage of vessels belonging to any country other than Saudi Arabia through the Bab al-Mandab Strait. The US administration has assured the Houthis that America will stay out of the conflict. The current situation has exposed the reality that Saudi Arabia and other Gulf countries had been under the impression that the United States would inevitably come to their assistance in difficult times. However, America has left them on their own when they needed it most. At the same time, this situation has created new challenges for Pakistan. With the price of crude oil in the international market reaching $107 per barrel, the government has been compelled to increase petroleum product prices by more than Rs24 per liter over the past week. Pakistan is among those countries whose economies depend heavily on energy imports. Any increase in energy prices in the international market directly adds to Pakistan’s import bill. If both the Strait of Hormuz and the Bab al-Mandab Strait come under simultaneous pressure, the global transportation of oil and the supply of energy could be severely disrupted, potentially pushing crude oil prices in the international market to as high as $120 per barrel. Every $10-per-barrel increase in the international price of crude oil adds approximately $1.5 billion to Pakistan’s crude oil import bill. At the time of the US attack on Iran, crude oil was trading at around $70 per barrel in the international market, whereas it has now crossed the $100 mark. This means that an additional burden of around $5 billion has already been added to our import bill.
Pakistan’s oil import bill stood at $17 billion in 2025-26. Given the current situation, it appears likely to reach $22 billion in 2026-27. This will put additional pressure on the rupee and fuel inflation. Higher transportation costs will also push up the prices of food and other essential commodities. Similarly, an increase in electricity and gas prices will raise the cost of production for industries, which will ultimately be passed on to consumers. As a result, not only is inflation likely to rise, but interest rates may also increase, adversely affecting Pakistan’s GDP growth.
On the other hand, Pakistan’s economy relies heavily on remittances. At present, more than 4.7 million Pakistanis are employed in the Gulf countries and send more than $20 billion annually in remittances to Pakistan. If tensions in the region escalate further, the economies of the Gulf states will also be affected, threatening the employment of Pakistanis living and working there. Any decline in employment could lead to a reduction in remittances received by Pakistan, creating yet another major challenge for an economy that is already under considerable pressure.
The current situation has created a difficult and decisive moment for Saudi Arabia’s allies, and Pakistan now finds itself at a highly sensitive crossroads. Pakistan has historic, religious, fraternal and deep economic ties with Saudi Arabia, while under its defence cooperation arrangements, Pakistan also has important responsibilities concerning Saudi Arabia’s security. Although Pakistan has reiterated its unwavering support for Saudi Arabia’s territorial integrity, sovereignty and security and has condemned the Houthi attack, mere diplomatic statements will not be sufficient if the Yemen conflict develops into a broader war. Pakistan will have to adopt a balanced, clear and forward-looking strategy, keeping in view its national security, economic interests, energy security, maritime trade and strategic interests in the region. While fulfilling its historic commitments and defence responsibilities towards Saudi Arabia, Pakistan must also ensure that it does not become a party to any conflict that could undermine its own economy, energy security and internal stability. Maintaining this delicate balance will be the greatest test of Pakistan’s diplomacy and foreign policy in the days ahead.
