The March 2026 Iran War and Its Impact on Pakistan’s Economy and Internal Stability

Abstract

The Iran War of March 2026 has significantly reshaped the geopolitical dynamics of South Asia 
and the Middle East, creating a complex and multifaceted challenge for Pakistan. As a nation 
strategically positioned between these regions, Pakistan faces immediate threats to its energy 
security, economic stability, and infrastructure integrity. With over 80% of its petroleum imports 
reliant on the Strait of Hormuz, the closure of this vital shipping route would severely disrupt 
Pakistan’s energy supply, triggering inflation and exacerbating its economic vulnerabilities. 
Additionally, Pakistan's dependency on remittances from the Gulf countries, particularly from 
Saudi Arabia and the UAE, is at risk of disruption due to potential labor market dislocations and 
large-scale evacuations in the region. The strategic value of the China-Pakistan Economic Corridor 
(CPEC), a cornerstone of Pakistan’s economic future, is also threatened by regional militarization 
and instability. Furthermore, the conflict’s humanitarian ramifications—particularly the risk of a 
refugee influx from Iran’s Sistan and Baluchestan province—pose significant internal security 
challenges, potentially heightening ethno-sectarian tensions in Pakistan’s own Balochistan 
province. Through the lens of structural realism, this paper explores how Pakistan's foreign policy 
choices are shaped by its material capabilities, strategic dependencies, and the imperative of 
regime survival in an anarchic international system. The analysis demonstrates that Pakistan's 
options, whether military neutrality, diplomatic mediation, or strategic hedging, are constrained by 
external power dynamics and internal stability concerns.