Economists fear trade disruptions

Pakistan may have to face price volatility, delay in oil supplies due to ME conflict

ISLAMABAD:

Economists and businesspeople have voiced grave concerns over Israel-Palestine war, which may cause serious disruptions in regional and international trade and markets.

The Express Tribune approached economists and business leaders to get their inputs in the changing scenario where Israel had started killing innocent and unarmed civilians in Palestine, which could trigger a wider conflict in the Middle East and was frustrating the business community.

“When it comes to Israel-Palestine conflict, Pakistan may have to face the double whammy of price volatility and disruptions in crude oil supplies,” renowned economist Faizul Haq said.

“Pakistan needs to keep a close eye on the emerging scenario and the resultant volatility in international crude oil prices. The conflict is showing signs of expanding and engulfing the broader region, and crude has already climbed for a second week in a row as Brent futures gained 88 cents on Friday to reach $93.26 per barrel.”

He explained that the ongoing conflict will continue to plague peace in the entire world in general and the Middle East in particular for seemingly a long-drawn-out period, and, as a matter of fact, Pakistan may have to withstand volatility and disruptions in a number of scenarios:

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First, US further restricts the sale of Iranian oil in case of its active participation in the conflict as the international oil markets are already undersupplied, secondly Saudi Arabia and Russia extend their supply cuts beyond December 2023, thirdly, US and other major economies embark on strengthening their strategic oil reserves, and finally supply routes emanating from the Middle East come under the risk of blockades or attacks.

“In the short term, there was no effect as our imports and exports do not take place in Palestine. But if other countries are involved and the war expands, insurance premium of ships which carry our imports and exports will swell, and if the ships pay a high insurance premium, it will scale up cost of imports and exports which will ultimately boost prices of all products,” economist Dr Qaiser Bengali said.

“Secondly, we always need loans to run our matters, we will have to experience economic problems in seeking finances which come from international banks.”

He said that on top of that, if Iran is involved in the war, it might expand to Pakistan and if the conflict spreads to Gulf countries, there might be risks in future that overseas Pakistanis could come back, but there is no immediate danger.

Pakistan Stock Exchange (PSX) Director Ahmed Chinoy said that the ongoing war between Ukraine and Russia has already impacted many things as availability and non-availability of a good number of products were witnessed, and overall national and international issues dented the national economy.

He said that some brief respite just came but a new war between Israel and Palestine has started, frustrating the business community. The war is involving world powers including the US, UK and Europe, while on the other hand, Turkey, Iran and even Pakistan are raising voices against the massacre of Muslims and condemning Israel.

“If this war is prolonged, it might poorly affect regional and international trade in the economic scenario of Pakistan. It will bring about serious disruptions in international trade of crude oil. Pakistan has a big stake in terms of bilateral trade in Arab countries as our oil is supplied from Arab countries. Pakistan cannot afford any more economic crisis as it is struggling to bolster the economy by adopting all modus operandi,” he said.

Karachi Chamber of Commerce and Industry (KCCI) President Iftikhar Ahmed Shaikh said that any war will definitely take a heavy toll on world trade.

“The caretaker government is taking some good initiatives to curb smuggling and strengthen the rupee but such kind of conflict anywhere in the world will poorly affect our economy, if it is prolonged,” he said.

“There is no significant trade of Pakistan with Palestine and we have no trade relations with Israel. But when the world is affected, it will definitely leave an impact on our businesses,” he added.

Published in The Express Tribune, October 21^st, 2023.

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