Pakistan and Bangladesh are facing growing economic vulnerabilities amid the ongoing US-Iran conflict, with analysts warning that new disruptions to oil supplies could lead to steep increases in fuel and food prices in both countries. The prolonged tensions in the Gulf, now in their fifth month, have already caused significant volatility in global energy markets, exposing the two nations’ heavy dependence on imported fuel and limited financial buffers.

Both Pakistan and Bangladesh rely substantially on imported oil and diesel to meet their energy needs, making them susceptible to sudden price shocks. Jamus Lim, associate professor of economics at ESSEC Business School Asia-Pacific, noted that these economies have relatively low inventory reserves, which means price increases domestically could materialize quickly following any spike in global fuel costs.

Oil prices have been climbing steadily, with July marking the largest monthly gains since March, driven not only by concerns over supply in Gulf shipping lanes but also by recent attacks affecting vessels elsewhere. A drone strike on gas ships at Egypt’s Mediterranean port of Damietta heightened uncertainty over shipping routes near the Suez Canal, a crucial corridor for Saudi oil exports.

For Pakistan and Bangladesh, the economic impact could be particularly acute given their existing fiscal constraints. Both are under International Monetary Fund (IMF)-backed reform programs emphasizing fiscal discipline, limiting their ability to cushion consumers from rising costs through subsidies or delayed tariff adjustments. This raises the prospect of increased inflation and renewed pressure on their currencies and public finances.

A report from Oxford Economics published Wednesday highlighted a broader pattern of risk among emerging markets, including Pakistan, Egypt, Mozambique, Nigeria, and Kenya, where political, geopolitical, and financial challenges coincide amid rising debt service burdens. The analysts warned that countries with low foreign exchange reserves — such as Mozambique, Pakistan, Kenya, Ghana, and Tunisia — are especially vulnerable to shocks stemming from a protracted closure of the Strait of Hormuz, a strategic chokepoint for nearly 20% of global oil supply.

“If the Strait of Hormuz remains closed through 2027, sovereign stress would intensify due to inflationary pressures, currency depreciation, and increased financial costs,” said Evghenia Slepova, a senior emerging markets economist at Oxford Economics.

Bangladesh faces additional economic headwinds, including domestic inflation, energy shortages, a banking crisis, and challenges in international trade. Lim suggested that Bangladesh might need to seek additional leniency from the IMF to manage its debt obligations amid these compounded pressures.

Meanwhile, Neil Shearing, chief economist at Capital Economics, warned last month that extended disruption to the Strait of Hormuz could push oil prices above $120 per barrel, further exacerbating the situation for energy-importing countries.

Global authorities, including the International Monetary Fund, have stressed that while the world economy is currently absorbing the effects of the Middle East tensions without clear signs of a slowdown, the risk environment remains fragile. Continued escalation or extension of conflict-related disruptions could worsen inflation and economic instability in vulnerable emerging markets like Pakistan and Bangladesh.