KARACHI: A flare-up in tensions between the US and Iran could aggravate Pakistan’s economic situation, forcing the country – which relies heavily on oil imported through the Strait of Hormuz – to work toward defending its economic and political interests, analysts said on Tuesday.
A flurry of attacks in and around the Strait of Hormuz – the busiest transit lane for seaborne oil supplies that splits Iran from its Arab neighbors – has left six oil tankers damaged since May this year, adding to the tensity between Washington and Tehran.
The US authorities hold Iran responsible for the mounting attacks on the oil tankers, an allegation which Iran denies.
In June this year, US Secretary of State Mike Pompeo said: “This assessment is based on intelligence, the weapons used, the level of expertise needed to execute the operation, recent similar Iranian attacks on shipping and the fact that no proxy group operating in the area has the resources and proficiency to act with such a high degree of sophistication.”
In a worst case scenario, analysts expect Asian countries, including Pakistan, to be engulfed by the flames of war and increasing oil prices in the Gulf region.
“As the global economy relies heavily on oil supplies, closure of the Strait of Hormuz [will lead to] a sharp increase in prices, which will cause panic in all world markets. In this situation, Kuwait, Qatar, Bahrain, Iraq and the UAE will stop shipping oil containers, and Saudi Arabia will be forced to export its oil through the Red Sea ports,” Omid Shokri Kalehsar, a Washington-based Senior Energy Security Analyst and Visiting Research Scholar at Center for Energy Science and Policy (CESP) and Schar School of Policy and Government at George Mason University, told Arab News.
“In this case, the conflicts will take place in the peak region, which will lead to a military confrontation,” Shokri added.
Starting from yesterday, Pakistan began receiving oil supplies from Saudi Arabia on deferred payments worth $275 million a month. “These supplies will continue over the next three years with a total value of $9.9 billion,” a statement issued by the Saudi embassy in Islamabad said on Monday.
In October last year, the Kingdom of Saudi Arabia had announced an economic support package for Pakistan which included $3 billion for supporting the balance of external payments. The package also included oil imports on deferred payments. The agreement between the two sides reached a total amount of $20 billion, the statement added.
Additionally, Saudi Aramco will supply 110,000-115,000 barrels of crude oil to Pak-Arab Refinery and National Refinery on a daily basis.
Pakistan has imported petroleum crude worth $4.2 billion, 12% higher, during the July–May period of the outgoing fiscal year ending on June 30 as compared to $3.7 billion, according to the Federal Bureau of Statistics.
However, analysts argue that – despite the Kingdom’s generous offer – supplies would be affected by any “dangerous escalation” between Iran and the US. Pakistan meets 85% of its oil needs through imports.
“Pakistan’s majority of oil and Liquefied Natural Gas LNG passes through strait of Hormuz. Obviously, a major increase in price, insurance and risk premium is going to be costly for Pakistan,” Samiullah Tariq, Director Research at Arif Habib Limited, said.
Amid rising tensions in the Gulf region, “the insurers have increased the premium of those vessels crossing strait of Hormuz,” Masood Abdali, a Texas-based energy expert and former business development manager of Weatherford, Saudi Arabia and Bahrain, told Arab News. 
“There are slim chances of a US-Iran war,” he said, adding that in a worst case scenario “if the Strait of Hormuz is closed, Pakistan and Asian countries would suffer much.”
“Pakistan’s lower capacity of oil storage could be the matter of the country’s security,” he added.
“Security of supply is very vital for both exporters and importers. Any tension and any possible confrontation in the Strait of Hormuz is not in favor of world oil market,” Shokri said.
Meanwhile, defense analysts ruled out Pakistan’s neutrality amid the regional flare-up.
“Pakistan has a very clear stance that if Makkah and Madinah are attacked, we would stand up to defend it. I don’t think if any country attacks Saudi Arabia, Pakistan will not be involved. Pakistan can and would play a role of mediator between Arabs and Iranians,” Lt. General Retd. Naeem Khalid Lodhi, former minister of Defense and National Security Division told Arab News.
Lodhi appreciated the wisdom expressed by Saudi and other Arab leaders in the face of terror attacks on oil tankers. “I think Arabs and their leadership have expressed best example of tolerance, despite the fact that tankers were attacked in their areas and around. This was display of wisdom of higher degree. They have understood the conspiracy,” Lodhi said.
“In case of war smuggling of oil from neighboring Iran to Pakistan would increase, though the Pakistani government would try to stop such illegal inflow but it won’t be so easy to handle the situation,” Lodhi added. 
Analysts believe that despite the sanctions imposed by the US, Iranian oil continues to be supplied to the world market – a fact which is being ignored by the US.
“Reports indicate that Iranian oil supply is not fully suspended. Iran is selling oil to a number of Asian countries, but payment is made in a third country. In this situation, it is in the interest of Iran that the Strait of Hormuz remains open for oil transportation,” Abdali said.
“Iran needs to revise its regional foreign policy. Iran with huge oil and gas reserves needs active energy diplomacy to be a key player in the regional and world energy market. De-escalation of foreign policy would help Iran solve its problems with the US,” Shokri added.