KARACHI: Pakistani finance official Khurram Schehzad said on Wednesday that the US-Iran peace deal will lower geopolitical uncertainty in the region, reduce external risks and ensure a conducive environment for economic growth, helping Islamabad achieve its budget targets for the fiscal year 2026-27.
Schehzad’s statement comes days before the US and Iran are scheduled to sign a historic peace deal in Switzerland on Friday. The US-Israel war on Iran has hit energy markets worldwide since February, pushing global oil prices higher as shipping lines and trade routes were disrupted.
Pakistan, which heavily relies on the Middle East region for fuel imports, remittances and financial support, has been forced to hike prices of petroleum products multiple times since February. Rising energy prices have pushed up inflation to 11.7 percent in Pakistan in May, the highest rate recorded in the country since June 2024.
“Reduced geopolitical uncertainty lowers external risks, improves investor sentiment, eases pressure on energy markets and creates a more conducive environment for achieving growth, inflation, and investment targets under FY27 [budget],” Schehzad told Arab News.
Pakistan unveiled its Rs18.8 trillion ($67.5 billion) budget for the upcoming fiscal year last week, targeting a 4 percent economic growth. Islamabad aims to keep inflation down to 8.2 percent for FY27.
Pakistan has also raised its defense spending by 18 percent to Rs3 trillion ($10.8 billion) and allocated Rs1 trillion [$3.59 billion] for development projects.
When asked what tangible benefits Islamabad can derive from the US-Iran peace deal, Schehzad said the agreement could lower energy costs, improve regional trade flows, strengthen investor confidence, and reduce supply chain disruptions for Pakistan.
“For Pakistan, the key gains are greater macroeconomic stability, lower import costs, and a more predictable external environment for growth,” Schehzad noted.
He said the reopening of the Strait of Hormuz passageway, through which roughly 20 percent of the world’s oil and gas supplies are shipped to various parts of the world, would ultimately lower inflation in Pakistan.
“The restoration of normal shipping routes helps secure energy supplies and can ease upward pressure on global oil prices,” he said.
“If sustained, this would support fuel price stability and contribute positively to Pakistan’s inflation outlook.”
Pakistan’s maritime affairs ministry has sought to position the country as a transshipment and logistics hub, as the conflict forced vessels to change their routes and opt for alternative maritime passageways.
When asked if the restoration of traditional shipping routes would hamper Pakistan’s bid to establish itself as a regional transshipment and logistics hub, Schehzad said:
“No. Pakistan’s long-term value as a logistics, connectivity, and transshipment hub rests on geography, infrastructure, and regional integration, not on conflict,” he said.
’SOFT, INTANGIBLE GAINS’
Economists such as Muhammad Saad Ali and Muhammad Waqas Ghani agreed that a peace deal could bring down energy costs and that the lifting of sanctions on Iran may provide relief to Pakistan.
However, they said broader economic benefits may take longer to materialize.
Ali, head of research at Lucky Investments Limited, cautioned against expecting a surge in foreign direct investment (FDI) immediately after the peace deal.
“For now, I don’t think we should count on Foreign Direct Investment (FDI),” he said.
Pakistan has struggled to attract sustained FDI in recent years, with investors closely monitoring economic reforms, policy consistency, political stability and the overall business environment.
Ali said Pakistan would have to ensure long-term political and economic stability to attract FDI.
“Pakistan will have more soft, intangible gains than tangible gains in the form of economic gains,” he noted.
Ghani, head of research at JS Global Capital Limited, said the reopening of shipping routes could reduce the attractiveness of alternative shipping routes, such as the one offered by Pakistan in the region.
“While Pakistan’s long-term logistics potential remains intact, the immediate urgency for businesses to seek alternative routes through Pakistan could diminish,” he warned.
Ali, however, agreed with Schehzad that Pakistan could benefit from a more favorable geopolitical environment.
“Politically, Pakistan is in a good position,” Ali said, adding that the International Monetary Fund’s (IMF) stance toward Pakistan had been “soft” and could remain so for the remainder of its $7 billion loan program.