Socio-Economic Effects of the Middle East Crisis on Household Welfare in Pakistan: Policy Responses

The broader vulnerability of Pakistan to external economic shocks has been highlighted by the Middle East crisis. Pakistan is heavily dependent on Gulf Cooperation Council (GCC) countries for fuel imports, with approximately 81 percent coming from this region. Regional disruptions can increase cost of fuel, transport, production and distribution and could place pressure on household purchasing power. This policy view therefore focuses on three important channels through which the crisis can affect households in Pakistan: imported cost-push inflation and the cost of living, pressure on health and education spending, and uncertainty around remittances, labour income and SME earnings.

The recent domestic price movements are in line with this transmission, but they may also be driven by other domestic factors. The HIES 2024–25 data show that lower-income households are devoting a significant proportion of their budgets to food, housing, and utilities with transport adding further pressure. This leaves them with limited capacity to absorb additional increases in essential costs. Recent remittance indicators do not yet indicate a sustained crisis-induced shock. Remittance inflows recorded positive year-on-year growth during May to July 2026 while the three-period moving average declined in June before increasing again in July.