The US-Iran War Has Settled Into Attrition — and Pakistan Is Caught in the Economic Crossfire

Seven months after it began, the US-Iran war shows no sign of resolving into either a lasting peace or a decisive outcome — and the closer it drags on, the more its effects reach economies with no direct role in the fighting, Pakistan's among them.

How the war got here

The conflict began with US-Israeli strikes on Iran on February 28, 2026, and has since moved through failed off-ramps. The US and Iran signed a memorandum of understanding in June, the Pakistan-brokered Islamabad MoU, meant to end the war and reopen the Strait of Hormuz. It frayed within weeks over who controlled shipping through the strait, with Iran striking vessels that did not follow its approved route, and President Trump declared the ceasefire "over" in mid-July. As of September 2026, the two sides are described as locked in a war of attrition — trading limited strikes while the US runs a redoubled sanctions campaign and regional governments attempt to restart diplomatic engagement.

In late August, the Trump administration escalated economic pressure further with a sanctions push officials dubbed "Operation Economic Outcast" — described by Treasury Secretary Scott Bessent as an unprecedented effort to sever Iran's economic lifelines. Analysts assess Iran's capacity to sustain further attacks as limited, with the country facing an increasingly difficult economic position of its own.

Why this has been a Pakistani economic story all year

For a conflict with no Pakistani combatants, this war has had an outsized effect on ordinary life in Pakistan. Disruption to shipping through the Strait of Hormuz — a chokepoint for a large share of the world's oil trade — pushed international crude prices higher and more volatile through 2026. That volatility is the direct reason Pakistan moved its own fuel-pricing mechanism from a fortnightly review to weekly, then to a full daily cadence by July 17, 2026, a change we've covered in detail in our petrol and diesel pricing explainer. The same volatility factored into the State Bank of Pakistan's decision to hold its policy rate at 11.5% in September, as covered in our KIBOR explainer.

Where Pakistan has positioned itself

Pakistan's official response to US pressure over Iran has been notably measured. Foreign Office spokesperson Tahir Andrabi stated in early September that Pakistan is "following international law, and our bilateral trade agreements with Iran" — language that asserts policy continuity rather than signaling any shift toward Washington's position. That's a deliberate balancing act: Pakistan shares a long, historically important border and trade relationship with Iran, while also depending on US relations for other strategic and economic reasons, including its ongoing IMF program.

At the same time, ties with Washington have had unusually warm moments this year — Pakistan's government formally recommended President Trump for the 2026 Nobel Peace Prize in June 2025, citing his diplomatic intervention in a separate regional dispute, and Trump has publicly praised Pakistan and Prime Minister Shehbaz Sharif at this year's UN General Assembly, as we've covered separately.

The through-line for Pakistani readers

Whatever happens next in the US-Iran conflict, the mechanism by which it reaches Pakistani households is now well established: oil-market volatility flows into pump prices within a day, into the exchange rate and interest-rate decisions within weeks, and into the broader cost-of-living picture from there. A war with no Pakistani participants has, for most of 2026, been one of the more consistent drivers of Pakistani economic headlines.

Build Better Pakistan's Foreign Desk tracks how international conflicts and diplomacy affect Pakistan's economy and foreign relations.