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Economic experts have voiced concerns over the dramatic escalation of cross-border tension between Pakistan and Iran, projecting a new wave of inflation in the country if the situation persists.

“Pakistan-Iran tensions simmering from a recent cross-fire incident threaten crucial trade flows, jeopardising domestic stability,” said Intermarket Securities in a note on Thursday.

The brokerage house shared that Iranian LPG, which accounts for 17% of Pakistan’s local demand, faces potential disruption, risking gas price hikes and amplifying inflation woes.

Tensions with Iran add to Pakistan’s economic challenges

“Fruits and vegetables imported from Iran hold a smaller import share i.e. less than 1% market share, (but) they could potentially contribute to food inflation.”

The brokerage house was of the view that the issues could be addressed by regional diversification through Afghanistan. “But it is complicated by Afghan tensions amid deportation of Afghan refugees, limiting alternative sourcing,” it added.

Meanwhile, Samiullah Tariq, Head of Research at Pak Kuwait Investment Company, told Business Recorder that the impact would not be much as the two countries didn’t have much formal trade.

“Some food commodities like onion, dates might see some impact,” he said.

Similar views were expressed by Mustafa Pasha, Chief Investment Officer at Lakson Investments.

“Pakistan barely has any exports to Iran, while our imports comprise mostly gas and electricity and that too, primarily in the Balochistan province. So supply of electricity/fuel in those regions may be compromised if the recent events lead to border closure,” he told Business Recorder.

“Overall the impact will be more on sentiment and may affect foreign interest in our capital markets and FDI (foreign direct investment),” he added.

Meanwhile, Pakistan’s Commerce Ministry on Thursday said it is closely monitoring the situation with Iran and in this regard a meeting with trade officials of Pakistan embassy has been lined up to strategise the future course of action.

Background

Tensions between the neighbouring countries escalated after Iran violated Pakistan’s airspace on Wednesday, which killed two children and injured three girls.

It was reported that “two bases of Jaish al Adl in Pakistan were targeted by missiles on Tuesday”, according to Iranian state media, a day after Iran’s elite Revolutionary Guards attacked targets in Iraq and Syria with missiles.

The strikes took place in the border town of Panjgur in Balochistan, according to reports.

In response, Pakistan on Thursday undertook a series of highly coordinated and specifically targeted precision military strikes against what it called terrorist hideouts in the Siestan-o-Baluchistan province of Iran.

“A number of terrorists were killed during the Intelligence-based operation – codenamed ‘Marg Bar Sarmachar’,” Pakistan’s Foreign Office said in a press release issued early on Thursday.

Iranian media said several missiles hit a village in the province that borders Pakistan, killing three women and four children, all non-Iranians.

The dramatic escalation prompted several countries to issue statements, with China first urging restraint, and then following up with a mediation offer.

The US, EU, and Russia also issued separate remarks with the White House National Security Council spokesman John Kirby saying the United States was monitoring the situation “very, very closely” and was in touch with Pakistani officials.

“These are two well-armed nations and again we don’t want to see an escalation of any armed conflict in the region, certainly between those two countries,” Kirby told journalists aboard Air Force One.

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