Pakistan rupee holds firm as Middle East hostilities raise depreciation concerns

[Pakistan’s Rupee Sustains Strength Amidst Deteriorating Regional Tensions and Soaring Energy Prices]

KARACHI: Pakistan’s rupee has stayed robust against the U.S. dollar amid recent surges in oil prices and expanding import costs, according to analysts and currency experts on Saturday. However, a protracted Middle East clash may threaten the underlying factors that currently support the currency.

On September 29, the rupee traded at Rs 277.1 per dollar—a modest 1.5 % rise from Rs 281.4 a year earlier—per the finance ministry’s Monthly Economic Update & Outlook released on September 30. This movement occurred alongside soaring energy costs, which intensified pressure on Pakistan’s external account.

Muhammad Waqas Ghani, economist and heads of research at JS Global Capital Pakistan, noted that dollar inflows thus far have proven ample enough to absorb upward‑pressured import spending and sustain overall currency stability.

He warned that an extended Iranian conflict and persistent oil prices hovering above $100 per barrel could dramatically enlarge the import bill, strain the current account, and boost demand for dollars.

“In such a scenario, I foresee a gradual depreciation of the rupee,” he added.

Brent crude closed the week at $102.25 per barrel, while West Texas Intermediate settled at $91.11 a barrel, according to Reuters reporting on Friday.

Given its heavy reliance on imported energy, Pakistan is already feeling the effect of higher prices on its import bill.

Petroleum imports surged over eight percent to $2.75 billion in the first half of the current fiscal year—up from the same period last year—and crude oil imports rose almost 40 percent in value during that span, according to official statistics.

Overall import volumes have climbed sharply, compounding challenges to the nation’s external payments.

In its latest monthly economic update, the finance ministry highlighted oil as the primary external vulnerability facing the country.

The ministry stated that the oil market constitutes the principal source of external risk.

Control of the situation has been maintained through stronger foreign exchange reserves, steady remittance inflows, and targeted fuel subsidies.

Finance adviser Khurram Schehzad declined to address specific drivers behind the rupee’s resilience in response to queries about the rising import bill and regional conflict dynamics.

Malik Muhammad Bostan, chairperson of the Exchange Companies Association of Pakistan, also cited rising forex reserves and remittance inflows as pivotal factors backing the currency.

“Your foreign exchange reserves have gone up to $26 billion,’ he said. ‘Worker remittances are increasing day by day.’

Workers’ remittances climbed 15 percent to $7.3 billion in July and August versus a year earlier, based on State Bank of Pakistan figures, and the current account deficit contracted from $853 million to $543 million over the same timeframe.

Bostan remarked that an expanding pool of Pakistanis employed abroad continues to underpin remittance flows, especially from the Middle East.

However, Bostan cautioned that persistently rising energy costs could neutralize these gains, potentially offsetting the benefits of continued remittance growth.

“Earlier, my monthly energy import bill was roughly $1 billion, and now it stands at approximately $1.5 billion,” he stated.

“If this conflict expands further, the dollar’s rate is expected to climb,” he predicted.

Exporters noted that maintaining currency stability was not inherently problematic, yet sudden exchange‑rate swings could harm trade if Pakistan’s balance of payments weakens.

Muhammad Raza, chairman of the Rice Exporters Association of Pakistan, warned that unless remittance and export growth outpace import‑bill inflation, ongoing oil‑price rises would further weaken the balance of payments and compel the rupee to depreciate.

Raza emphasized that currency stability was not detracting from export activities, and that a weaker rupee does not automatically confer competitive advantages for exports.

“A stable rupee is not detrimental,” he added. “Market adjustments occur naturally; however, large fluctuations are harmful to exports regardless of direction.”

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