The Pulse | Economy | South Asia

The Iran War’s Impact on India and Pakistan

The economic brunt of a prolonged war would be borne by the Indian and Pakistani people, who have no part in it but no escape from its consequences.

South Asian migrant workers on a construction site in Dubai, UAE, Dec. 2013

Following the breakdown of talks between the U.S. and Iran in Islamabad, Washington has moved to blockade Iranian ports. The U.S. Navy, which is operating in the Gulf of Oman, aims to block vessels leaving Iranian ports (allowing limited non-Iranian traffic) in order to pressure Iran to reopen the Strait of Hormuz and forego tolls on the crossing. Iran, meanwhile, has responded by warning that it will expand disruption of traffic across the Red Sea, and the Gulf and Sea of Oman. This tug-of-war has turned a geographic chokepoint into an economic one.

For Asian countries, particularly in South Asia, the Strait of Hormuz is more than an energy corridor.  It carries a substantial share of global LNG and fertilizer trade, alongside almost a fifth of global oil flows. The disruption of maritime traffic in the Strait of Hormuz has already created economic ripples across the world, especially through rising oil prices. The effects, however, do not remain confined to energy markets; they flow downstream, affecting agricultural supply chains and household economies.

Qatar’s declaration of a force majeure on LNG contracts following attacks on its facilities had immediate implications for South Asia. India and Pakistan, both relying on imported gas, face different but connected crises. India, which imports heavily from the Gulf, faces a real concern as the price of urea has increased sharply. India needs 17 million tons of urea by August 2026, but domestic production and existing stocks leave a shortfall of roughly 2 million tons. Filling that gap at current prices means a higher import bill, a weaker rupee, and a fertilizer subsidy heading toward a record $18 billion.

Although Pakistan’s local urea manufacturing insulates it partially from the disruption, it remains import-dependent on phosphate-based fertilizers such as di-ammonium phosphate, where sales have already fallen 23 percent during the last Rabi season (the winter-sown crop cycle that runs from October to April). Pakistani farmers already apply fewer fertilizers per hectare than their Indian, Chinese, or Bangladeshi counterparts. Any further price increase will push application rates lower, directly reducing yields.

Although South Asian countries are not party to the U.S.-Iran conflict, the effects have trickled down to the common man. Rising energy prices across the world caused India to invoke the Essential Commodities Act on March 9 to ration gas distribution. With the LPG cylinder price increasing by 60 Indian rupees (about $0.65) many Indians are extending cylinder life by simply not cooking. Moreover, there has been a mass exodus of migrant workers from bigger cities as the cost of living reaches the ceiling.

Pakistan, due to its IMF constraints, has inherited its own set of problems from the war. The government’s inability to subsidize fuel prices due to IMF pressure has resulted in rising costs being passed on to the consumer. This has caused much public outcry, risking political backlash. Furthermore, public life has been hampered by smart lockdowns and frequent power outages, as the........

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