The economic connection
INDIA and Pakistan are already paying a heavy price for not trading directly. The closure of the Strait of Hormuz has created a new urgency for transboundary trade and energy cooperation. It has simply made the old argument impossible to dismiss. The global goodwill generated by the Islamabad talks has given Pakistan a new opportunity to win international support and initiate talks on regional economic and energy integration and direct trade between regional countries.
Eighty-one per cent of Pakistan’s oil imports pass through the strait. India depends on the Gulf for 40pc of its oil and 80pc of its gas. When daily tanker traffic collapsed from 150 vessels to three, both economies lost access to their primary energy supply. Oil prices surged, import bills exploded, currencies weakened, and stock markets fell sharply in both countries. Pakistan’s current account surplus, earned for the first time in nearly a decade, evaporated before anyone had time to celebrate it.
The trade disruption compounded the energy shock. Freight rates rose more than 90pc and war risk insurance reached $1.2 million per voyage. India’s $100 billion in annual Gulf exports and Pakistan’s textiles, Basmati rice and fresh produce face punishing rerouting costs that function as a direct tax on both economies. Informal trade between India and Pakistan routed through Dubai and other countries already exceeds $10bn annually. The World Bank estimates bilateral potential at $37bn. Both countries are already trading. They are simply taxing themselves to do it indirectly.
A prolonged conflict threatens billions in inflows, with mass return migration turning a financial shock into a social crisis. The less-noticed threat is fertiliser: the Gulf supplies nearly half of global urea trade, and a strait closure drives up prices and shuts down domestic production in both countries simultaneously. Both countries have millions of workers in the Gulf whose remittances underpin rural households and national balance sheets alike: from Kerala to Kohat, 9m Indians, 5m Pakistanis.
Trade interdependence produces political stability by making conflict expensive.
This crisis compounds a climate stress already in motion. The 2025 floods, driven by record heatwaves and an unusually intense monsoon, affected 6.9m people and submerged 1.3m hectares (3.2m acres) of Punjab farmland. Indian farmers were already managing erratic rainfall before the fertiliser shock arrived. Hormuz made a stressed system critical. Food security across the subcontinent is simultaneously a climate, energy, and trade problem that neither country can solve in isolation.
Costing diversification: Both countries spent decades diversifying their trade away from each other, convinced that mutual dependence would become a liability in times of tension. The Hormuz crisis has shown that the strategy was costlier: routing commerce through third-party hubs and paying political premiums on indirect trade left both economies exposed to the same distant chokepoint. They achieved the vulnerability they were trying to avoid, and none of the stability that interdependence would have provided.
External shocks do not respect bilateral estrangements. Hormuz does not care whether or not the two countries trade with each other. The only genuine hedge is shared infrastructure: alternative routes, alternative suppliers, and a mutual interest in keeping them open.
The obvious objection is that the political relationship is too toxic for economic integration. It deserves a direct answer. China and India have fought a war, contested borders for decades, and traded through every stand-off regardless. Bilateral trade reached $127.71bn in FY25, having grown fourfold in a decade. Neither side confused trade with friendship. Both decided that separation costs more than interdependence. That is the north star here.
History points in the same direction. Trade interdependence produces political stability by making conflict expensive. The Trans-Siberian pipeline connected Soviet gas fields to Western Europe at the height of the Cold War, over the same objections raised today against TAPI and the Iran-Pakistan pipeline. The Europeans proceeded. The Arab Gas Pipeline did the same between Egypt, Jordan, Syria and Lebanon. The lesson is consistent: infrastructure as a building block of predictability, not the other way round.
The Iran-Pakistan pipeline is already built on the Iranian side. Pakistan faces an $18bn arbitration penalty for completing just 80 kilometres of its 780km section. If American sanctions are lifted, finishing it would power Pakistani industry, cut electricity costs and generate the sustained economic activity that stabilises states from within. A country with falling energy costs is a more stable neighbour than one lurching between loadshedding and IMF programmes.
Extended to India, it becomes something larger. Iran’s South Pars field is the world’s largest, and it sits at the intersection of the Persian Gulf, the Caspian, and Central Asia. A completed Iran-Pakistan-India pipeline would connect the Middle East’s largest gas reserves to South Asia’s largest energy markets, while Iran’s existing links northward to Turkmenistan means the route could eventually carry Central Asian supply eastward without passing through Afghanistan. Pakistan earns transit revenues. India cuts Gulf exposure. Iran gains economic reintegration. None can easily walk away from the infrastructure they depend on — which is precisely the point.
TAPI completes the picture from the other direction: $10bn, 33bn cubic metres annually, $500m a year in Afghan transit fees, four troubled neighbours bound by shared dependency. Together the two pipelines give the region overland energy supply from both west and north and the corridors through which renewable energy trading will eventually flow. Besides, there’ll be a structural reason for rivals to cooperate. That is a climate investment and a strategic one.
CPEC already exists as a China-Pakistan infrastructure corridor. The question is whether it can be recast as a clean energy corridor, carrying Chinese renewable capacity to Pakistan and eventually India, linking the world’s largest solar manufacturer to the region’s most acute energy deficits. Infrastructure of that scale creates shared interests that make disruption costly for every country involved.
The Hormuz crisis has shown what economic separation actually costs. The answer is not further decoupling but deeper integration: shared infrastructure that gives every country along the corridor an alternative to the chokepoints they cannot individually control. Economic integration does not require political trust to begin. It helps produce it over time.
The writer is a climate change and sustainable development expert.
Published in Dawn, April 23rd, 2026
