Pakistan's Economy at Risk from Renewed US-Iran Conflict, Officials Warn

The Economic Affairs Division (EAD) has alerted a parliamentary panel to the significant economic risks Pakistan could face if the US-Iran conflict escalates anew. These risks include a surge in energy costs, heightened inflation, increased demand for external financing, and a slowdown in economic growth. The warning came as the National Assembly Standing Committee on Economic Affairs Division, chaired by Mirza Ikhtiar Baig, reviewed several key infrastructure projects.

“

any renewed US-Iran escalation could adversely affect Pakistan’s economy through higher energy costs, inflation, increased external financing needs and slower economic growth.

The committee specifically advised the government to thoroughly evaluate all cost-effective financing options for the multi-billion-rupee Lyari Elevated Freight Corridor (LEFC). This recommendation stems from concerns over a significant disparity between the project's estimated cost under a proposed loan from the Korean Exim Bank and an estimate prepared by the National Highway Authority (NHA). The committee observed that the proposed financing could nearly double the project's cost compared to the NHA's estimate, emphasizing the need for a financially prudent approach in the national interest.

“

The committee also expressed concern over delays and cost overruns in the Karachi Greater Water Supply Project (K-IV).

Furthermore, the committee voiced concern over delays and cost overruns plaguing the Karachi Greater Water Supply Project (K-IV). Information presented by the EAD team, including parliamentary secretary Zeb Jaffar and federal secretary Humair Karim, indicated that only Rs10 billion has been allocated for K-IV against an estimated requirement of Rs78 billion. This substantial funding gap threatens the project's timely completion and the provision of adequate water supply to Karachi.

“

The committee observed that the proposed financing would result in a project cost nearly twice that estimated by the NHA and emphasised the need to identify the most cost-effective financing option in the national interest.

The EAD acknowledged that while Pakistan entered 2026 with improving macroeconomic fundamentals, the Middle East conflict and the temporary closure of the Strait of Hormuz had disrupted global energy markets. Although international oil prices have moderated and maritime trade has largely resumed following a ceasefire and the Islamabad Memorandum of Understanding, the EAD stressed that regional uncertainties persist. The committee recommended that the EAD secretary convene consultations with relevant ministries and the Karachi Port Trust to develop a mutually agreed and financially sound financing model for the LEFC, and requested a comprehensive briefing on the K-IV project's status and challenges at its next meeting.

“

Members observed that the significant funding gap could adversely affect the timely completion of the project and delay the provision of an adequate water supply to Karachi.