A conflict thousands of kilometers away in the Gulf is now showing up in Karachi’s household kitchens and Punjab’s wheat fields because Pakistan imports 40% of its energy and most of its diesel, petrol, and LNG moves through routes linked to the Strait of Hormuz, the US-Iran confrontation that escalated in February 2026 has become a direct cost shock for food and agriculture. Before the latest regional flare-up, Brent crude averaged around $70 per barrel. During the crisis it briefly touched $120 before stabilizing, with IMF projections putting the 2026 average near $82 — a rise of more than 21%. In Pakistan that translated into immediate retail hikes. By early April 2026 diesel was raised 54.9% to Rs 520.35 per litre and petrol 42.7% to Rs 458.40 per litre. Government officials called it “inevitable” because international prices went “out of control after the US-Iran war”.
With limited fuel inventories, analysts note the impact transmits “relatively quickly” into domestic prices. Pakistan’s agriculture is mechanized and energy-intensive, so it feels oil shocks first. Diesel accounts for roughly 20% of crop production costs because land preparation, irrigation and harvesting are now mechanized. Higher diesel directly raises the cost of tilling, tube wells, and transporting produce to market. Natural gas and oil markets are closely linked, so fertilizer prices climb with fuel. Farmers report a 50-kg DAP bag at Rs 17,500 ($63) and NPK at Rs 11,000 ($40). For context, the same DAP costs about Rs 4,000 in India. The pressure is compounded by logistics: up to 30% of world fertilizer exports — urea, ammonia, phosphates — pass through the Strait of Hormuz. Iran’s effective shutdown of the strait cut off shipments and added further pressure. Power tariffs for agriculture have surged to Rs 50 per unit from Rs 5.35 five years ago, raising the cost of tubewells and cold storage. The result, according to Pakistan Kissan Ittehad, is very difficult for farmers to cultivate currently. In fact, agriculture is not a profitable business currently”
Fuel is the transmission belt to food. Higher diesel raises transport fares and grocery costs, and diesel price hikes “inevitably translate into costlier public transport, more expensive food items and increased prices for basic necessities”. Economists warn that if Gulf tensions keep oil above $100/barrel, double-digit inflation could persist through FY2026-27. The main victims are “ordinary households facing higher food, transport, and electricity costs”. The World Food Program warned earlier that sustained high oil could push 45 million more people into acute hunger, and Pakistan — having only recently emerged from a period of exceptionally high inflation — is especially vulnerable.
With resources stretched, the government has moved from blanket subsidies to targeted relief – Rs 100 per litre subsidy for two-wheelers, capped at 20L/month for 3 months and one-time Rs 1,500 per acre support for small farmers. But the Petroleum Minister noted Rs 129 billion in subsidies over three weeks was no longer viable “since there is no end to this war in sight”. Farmers’ groups are demanding broader subsidies on fertilizer, electricity and diesel in the federal budget. The central bank also faces pressure. Instead of cutting rates for relief, it may have to raise them because higher energy prices threaten to worsen already high inflation.
Three structural factors make the spillover severe:
- Import dependence: 40% of energy is imported, much of it LNG from Qatar and oil via Hormuz.
- Weak buffers: Limited inventories mean global price spikes feed into domestic markets fast.
- Agriculture’s GDP weight: At about 24% of GDP, any cost shock in farming ripples through the whole economy.
Economists classify Pakistan and Bangladesh among the Asian economies “most exposed” to a prolonged US-Iran conflict. Even if a US-Iran agreement is reached, analysts say it would take months before lower energy prices translate into relief. The government’s growth target of 4% for FY2026-27, with agriculture at 3.8%, becomes harder if oil stays elevated. The US-Iran conflict hasn’t just raised the price at the pump. It has raised the cost of growing wheat, running a tube well, shipping vegetables, and cooking dinner in Pakistan. With diesel up ∼55% and fertilizer up multiples, the food system is absorbing a classic cost-push inflation shock. For a country where agriculture employs millions and food inflation hits the poorest hardest, the war’s most immediate battlefield may be the kitchen, not the Gulf.