War opens port opportunity

The illegitimate US-Israeli war against Iran has posed numerous challenges for Pakistan's economy, but it has also created a new opportunity that can be leveraged. The challenges, mainly driven by volatility in the oil market, have created significant uncertainty, as fuel prices at the pump are expected to increase.

This is accompanied by fears of shortages of fuel products in the market, potentially leading to temporary closures of educational institutions and the possibility of smart lockdowns.

Further, rising fuel prices are likely to generate inflationary pressures, increasing concerns for policymakers, especially as the economy has recently shown signs of recovery from the previous balance-of-payments crisis.

High oil prices will inflate the import bill, widening the trade deficit and consequently the current account deficit. Given Pakistan's limited foreign exchange reserves, a rising current account deficit could trigger speculation in the foreign exchange market, putting pressure on the PKR-USD exchange rate.

This creates a vicious cycle, where currency depreciation fuels further inflation, particularly through higher domestic fuel prices. This double-edged situation makes the regional conflict even more concerning for policymakers. While the exchange rate has not yet been significantly impacted, a prolonged conflict and continued rise in fuel prices could intensify these pressures.

However, as the title suggests, new opportunities are emerging in maritime logistics and trade. Pakistan is increasingly becoming an alternative destination for shipping lines seeking to avoid the conflict in the Gulf region. The process of transferring cargo from one vessel to another, known as transhipment, becomes more common during such disruptions.

Transhipment volumes exceeded 8,800 containers in the first 24 days of March 2026, surpassing the total annual volume of 8,300 containers recorded in 2025. This represents a staggering 1,400% increase in activity, highlighting Karachi Port's growing importance as a strategic hub for shipping lines bypassing the Gulf. Pakistan stands to benefit through higher port revenues, reduced freight costs (if it expands its merchant fleet), and increased trade opportunities.

This surge in maritime logistics presents opportunities that could have been further maximised if the China-Pakistan Economic Corridor (CPEC) had fully achieved its logistics and trade development goals.

The Ministry of Maritime Affairs has recently revised tariff structures for ships berthing at Pakistani ports. Discounts have been introduced on port fees, wharfage and storage, while the mandatory transhipment cargo ratio has been reduced to attract more carriers.

Large container ships carrying substantial transhipment cargo are offered additional concessions on pilotage, tugging and berthing charges. Furthermore, ships using environmentally friendly fuels receive extra incentives. These measures significantly enhance the attractiveness of Pakistani ports as transhipment hubs.

According to the World Bank's Logistics Performance Index (LPI), Pakistan scored 2.42 in 2018, which is below the South Asian average of 2.62 and the broader regional average of 2.73. This indicates that Pakistan's logistics infrastructure lags behind that of many neighbouring countries.

Data from UNCTADstat further highlights the disparity. Pakistan had around 22 ships in its merchant fleet in 2025, most carrying the national flag. In contrast, India owned over 1,200 ships, while the UAE had approximately 1,600 vessels, many operating under foreign flags.

In terms of cargo volumes, Pakistani ports handled over 80 million metric tonnes in 2024, compared to 860 million in India, over 430 million in the UAE, and 490 million in Saudi Arabia. Across Western Asia and North Africa, total port activity reached 2.5 billion metric tonnes.

The region is also critical to global oil trade. In 2024, around 900 million metric tonnes of crude oil were loaded from Western Asia and North Africa out of 2 billion globally. Similarly, 500 million metric tonnes of refined fuel products were exported from the region out of 2.3 billion globally.

Pakistan, however, remains heavily reliant on imports of refined petroleum products due to limited domestic refining capacity. In 2025, approximately 9.7 million metric tonnes of crude oil and 23 million metric tonnes of refined products were discharged at Pakistani ports. Meanwhile, Asian ports collectively imported over 1.2 billion metric tonnes of crude oil and 1.03 billion metric tonnes of refined fuels, underlining Asia's importance as a consumption hub.

The Linear Shipping Connectivity Index (LSCI), which measures integration into global shipping networks, ranked Pakistan 35th in early 2026, compared to India (9th), the UAE (16th), and Sri Lanka (20th). Leading positions were held by China, South Korea, Singapore and Malaysia.

Within Pakistan, Karachi Port remains the most connected, but it still lags significantly behind regional competitors such as India's Nhava Sheva and Mundra ports, the UAE's Jebel Ali, and Sri Lanka's Colombo.

Although the government has introduced emergency measures to ease port congestion – such as creating additional storage facilities and enabling multimodal transport – long-term reforms are essential. These include improving digitalisation of port documentation, integrating systems with Pakistan Single Window (PSW), restructuring governance of Karachi Port Trust and Port Qasim Authority, and revising tariff frameworks to reduce reliance on dollar-indexed costs.

Additionally, developing off-dock terminals can help reduce congestion and delays. Port-led development, combined with Special Economic Zones (SEZs), can generate much-needed foreign exchange earnings and create broader economic spillover effects across the country.

THE WRITER IS AN ASSISTANT PROFESSOR OF ECONOMICS AND A RESEARCH FELLOW AT CBER, IBA