Page 37 - CMA Journal (Mar-Apr 2026)

The US-Iran 2026 war is a canonical instance of an The war broke out at a
asymmetric geopolitical shock with asymmetric very sensitive point in
transmission, with a heavy impact on emerging economies Pakistan's economy. The
dependent on imports. In the case of Pakistan, which is by its nation had a fragile
structural design a country dependent on imported energy m a c r o e c o n o m i c
supply, Gulf remittances and foreign multilateral nancial stabilization with the
aid, the war had an immediate and ripple effect on its International Monetary
currency and price stability. This paper will thoroughly and Fund (IMF) in the one-
critically examine the currency risk and in ation risk that are year Extended Fund
facing Pakistan after the war. Using high-frequency Facility (EFF), after the
macroeconomic estimates, IMF and World Bank estimates w o r s t e c o n o m i c
and a comprehensive review of recent empirical research downturn in the nation's
Muhammad Musab Mirza
evidence, the analysis shows that a combination of a history in 2023, with
PhD Scholar in
skyrocketing oil import bill, an enhanced exchange rate in ation hitting highs of
Corporate Finance
pass-through, and limited external nancing reversed the 38 percent, foreign
hard-earned disin ationary success under the Extended reserves depleted below
Fund Facility (EFF). $3 billion and the rupee falling to PKR 307/USD (Tresmark,
2026). By early 2026, the in ation had also been put in check
Although the diplomatic effectiveness of the April 2026
to 5.8 per cent, the current account turned to surplus for the
cease re, which was orchestrated by Pakistan to a certain
rst time in 14 years, and the rupee had stabilized at PKR
degree, provides relief against the extreme tail-risk
280/USD (Mettis Global, 2026; Pasha, 2026). However, it was a
situations, the article argues that the structural
delicate balance especially because it was extremely
vulnerabilities remain. Findings highlighted the imperative
dependent on a thin-sliver line of external variables such as
need to entrench sound currency risk management systems,
steady oil prices at or under $70-80 per barrel, unbroken ow
expedite the transition out of energy and upgrade the
of remittances from the Gulf, and multilateral lender
domestic nancial market, guided by cost and management
support.
accountants, policymakers and nancial strategists to
protect the real economy from exogenous shocks in the The following critical research question is addressed in the
future. article: How can the US-Iran 2026 geopolitical shock be
transmitted onto the macroeconomic stability of Pakistan,
Introduction by way of currency depreciation and imported in ation?
On 28 February 2026, the US and Israel launched a major Adopting a multi-method approach that incorporates high-
military operation targeting Iranian nuclear and military frequency economic factors with an overview of the modern
installations pushing tensions in the region to the point of empirical evidence, the article shows that the con ict is a
full-scale warfare (Hussain, 2026). The direct result was an strong exogenous stress factor that exacerbates the
effective lockout of the Strait of Hormuz — a strategic structural vulnerabilities of Pakistan. To the audience of the
waterway over which about 20 percent of world seaway CMA Journal, which consists of cost accountants, nancial
crude oil and much of lique ed natural gas (LNG) passes managers, and corporate strategists, the given analysis will
(Qadir, 2026). For Pakistan, which sources over 80 percent of present crucial evidence of how external shocks are
its imported petroleum, and most of it through this transmitted and the paramount importance of building
chokepoint, the shock was both acute and immediate (Qadir, nancial resilience in the context of increased geopolitical
2026). instability.

ICMA’s Chartered Management Accountant, Mar-Apr 2026 35