If Donald Trump orders the United States back into the skies over Iran, the shockwaves will not stop at the Strait of Hormuz. They will barrel eastward along the same pipelines and shipping lanes that keep Pakistan's factories humming and India's ports open. A resumption of American strikes would send crude prices surging past $120 a barrel within weeks, according to modelling by the Pakistan Petroleum Dealers Association. That single figure threatens to erase the fragile gains from the 2024 Iran-Pakistan gas pipeline restart and could force Islamabad to ration electricity for the first time since the 2022 floods. For New Delhi, the calculus is equally stark: restarting Chabahar port or watching its Afghan trade corridor wither under renewed Hormuz risk. The fragile pause in US-Iran hostilities is not just a Middle Eastern ceasefire; it is the thin membrane holding together South Asia's energy architecture.
Why a second Trump term's Iran gambit could scorch South Asia's economy
Oil is the invisible spine of South Asia's growth. Pakistan imports roughly 40 % of its crude from the Middle East, while India buys 10 % of its oil from Iran alone. A renewed US bombing campaign would sever the Strait of Hormuz for weeks, cutting 20 million barrels a day from global supply. The resulting price spike would hit Pakistan's import bill by an estimated $8 billion in the first quarter, equivalent to 1.2 % of GDP. For India, the cost could reach $15 billion, eroding the fiscal space Delhi needs to fund its green-energy transition. Yet the deeper danger lies in the choke points: the 785-kilometre Iran-Pakistan gas pipeline, mothballed since 2019, is only now creeping back to life after a $2 billion Chinese lifeline. A single US strike on Iran's oil infrastructure would force Islamabad to burn expensive furnace oil instead, pushing retail electricity prices up 35 % and reigniting the street protests that toppled Imran Khan in 2022. The region's central banks would face a brutal trilemma: defend the rupee, prop up subsidies, or beg the IMF for another programme. None of the choices are politically survivable.
The 2020-2021 shadow war that taught South Asia the cost of escalation
After the US killed Qasem Soleimani in January 2020, Iran retaliated with a missile barrage on Iraqi bases hosting American troops. The immediate fallout was a 45 % spike in Brent crude and a week-long suspension of Gulf oil shipments. Pakistan's then prime minister, Imran Khan, scrambled to secure an emergency IMF tranche, while India quietly diverted two naval ships to the Gulf to protect its tankers. The episode exposed a paradox: South Asia's economies are hostage to a conflict they cannot control. The 2020 crisis also revealed the fragility of the 2016 Chabahar port agreement between India, Iran and Afghanistan. When Washington reimposed sanctions in 2018, New Delhi mothballed the project for two years. By the time it restarted in 2021, Iran had already pivoted to China for financing and security. The lesson for 2026 is clear: every time the US and Iran step back from the brink, South Asia's supply chains lurch forward, only to freeze again when the next crisis erupts. The region has been here before, and each return costs more.
What Trump just said, and what it actually means
Speaking to reporters in West Palm Beach, Florida, Donald Trump told journalists there is a possibility Washington may restart attacks on Iran, according to reporting by Middle East Eye. The statement is not an order, but it is the loudest public signal yet that the current lull, now in its fifteenth month, could collapse within weeks. Trump's phrasing deliberately echoes his 2020 threat to "bomb the hell out of" Iran, a line that preceded the Soleimani strike. The difference this time is the regional context. In 2020, Pakistan stayed neutral; in 2026, Islamabad is locked in a $62 billion bailout with the IMF and cannot afford another oil shock. India, meanwhile, has quietly upgraded its naval presence in the Gulf of Oman, deploying a P-8I Neptune maritime patrol aircraft squadron to Muscat in March 2026. The redeployment is framed as counter-piracy, but the aircraft's primary mission is monitoring Iranian naval movements. What Trump's words have done is crystallise a strategic uncertainty: will Washington treat Iran as a tactical problem or a strategic one? If the answer tilts toward the latter, South Asia's energy map will be redrawn overnight.
Global and regional reaction: who's hedging and who's betting on war
The immediate response to Trump's remarks has been a scramble for cover. Saudi Arabia's energy minister told CNBC on 9 July 2026 that Riyadh is prepared to increase output by 1.5 million barrels a day within 30 days if Hormuz is closed, but only if Washington guarantees the security of Saudi tankers. The condition is a polite way of saying Riyadh will not act without a US green light. China, which imports 10 % of its oil from Iran, has quietly accelerated oil purchases via the Gwadar port in Pakistan, diverting two Very Large Crude Carriers in June 2026. The move is a direct hedge against a Hormuz closure and a signal to Washington that Beijing will not abandon its Iranian energy lifeline. Russia, already selling discounted oil to India via the eastern corridor, has offered to supply an additional 300,000 barrels a day to Islamabad if Pakistan switches from Gulf crude to Russian Urals. The offer is priced in rupees to bypass the dollar, a subtle jab at US sanctions policy. In New Delhi, the foreign ministry has summoned the US chargé d'affaires to emphasise that any disruption to Iran's oil exports would "complicate regional stability." The coded message is clear: India will not risk its Afghan trade corridor for a US-Iran escalation it cannot control. The most consequential silence comes from Tehran. Iran's supreme leader, Ayatollah Khamenei, has not commented publicly since Trump's remarks, but the Revolutionary Guards have quietly moved additional anti-ship missiles to the Strait of Hormuz. The absence of inflammatory rhetoric may be tactical: Iran's strategy in 2026 is to absorb limited strikes without triggering a wider war, a gamble that relies on Washington's reluctance to open a second front while Ukraine remains unresolved.
South Asia impact: pipelines, ports and the IMF's red lines
For Pakistan, the immediate impact would be a liquidity shock. The country's foreign-exchange reserves currently cover just 1.8 months of imports, and the IMF programme, signed in March 2026, requires Islamabad to maintain a primary surplus of 0.4 % of GDP. A $10 billion oil shock would wipe out that surplus in weeks, triggering an automatic programme review and the risk of a balance-of-payments crisis. The Iran-Pakistan gas pipeline, which resumed partial flows in January 2026 after a seven-year hiatus, would become a liability rather than an asset: pumping Iranian gas requires Pakistan to settle invoices in euros or yuan, but the central bank's reserves are already stretched thin. If Washington imposes secondary sanctions on any entity dealing with Iran's energy sector, Pakistan's banks would face exclusion from the SWIFT system, a scenario that would freeze trade finance and deepen the current account deficit. The last time Pakistan faced a similar squeeze was during the 2022 floods, when the rupee lost 25 % of its value in three months. This time, the trigger is not monsoon rains but a US president's idle threat.
For India, the dilemma is strategic. Chabahar port, inaugurated in December 2017, was meant to bypass Pakistan and open a trade route to Afghanistan and Central Asia. Yet after the Taliban takeover in 2021, cargo volumes collapsed from 1.2 million tonnes to less than 200,000 tonnes in 2025. Reviving the port now would require India to defy US sanctions on Iran's shipping sector, a move that could trigger secondary sanctions on Indian refineries and shipping lines. New Delhi's alternative is to rely on the Strait of Hormuz, but that route is vulnerable to Iranian retaliation. The Indian navy has already rerouted two destroyers to the Gulf of Oman, a deployment that costs an estimated $1 million a day. The real question is whether Delhi can afford to keep the fleet on station if the crisis drags on through the monsoon season. The last time India faced a similar choice was during the 2019 Pulwama crisis, when it weighed military escalation against economic stability. This time, the stakes are energy, not artillery.
For Bangladesh, the ripple effects would be indirect but severe. Dhaka imports 20 % of its LNG from Qatar via the Strait of Hormuz. A closure would force Bangladesh to buy spot cargo at prices 60 % higher than contracted rates, pushing retail gas prices up 40 % and reigniting the 2023 street protests that toppled the Sheikh Hasina government. The Bangladesh Bank would face the same trilemma as Islamabad: defend the taka, impose capital controls, or seek an IMF programme. The last IMF programme in 2023 required Dhaka to float the currency and raise interest rates to 9 %, a medicine that nearly collapsed the garment export sector. A second Trump shock would force Bangladesh to choose between social stability and fiscal discipline, an impossible choice for any government.
What happens next: three plausible paths and their consequences
Analysts expect three possible trajectories over the next 90 days, each with distinct consequences for South Asia.
Path one: calibrated strikes and calibrated pain The most likely scenario is a limited US strike on Iranian oil infrastructure, perhaps the Kharg Island terminal or the Abadan refinery, designed to signal resolve without triggering a wider war. The strike would close Hormuz for two to three weeks, pushing Brent above $110 a barrel. Pakistan would respond by rationing electricity in industrial zones, a move that could shave 0.8 % off GDP growth in the third quarter. India would quietly accelerate oil purchases from Russia and Venezuela, but the volumes would not offset the loss of Iranian crude. The IMF would likely grant Pakistan a waiver on its primary surplus target, but only if Islamabad agrees to deeper subsidy cuts. The risk is that Pakistan's street protests reignite, forcing the military to intervene, a scenario that would spook foreign investors and trigger a currency crisis. For India, the pain would be slower but deeper: higher input costs would delay the green-energy transition and force Delhi to postpone its 2030 net-zero pledge by at least two years.
Path two: escalation to full blockade A less likely but more consequential path is a US-led blockade of Iran's oil exports, similar to the 1980s Tanker War. The scenario would require Washington to deploy an aircraft-carrier strike group to the Gulf and mine the Strait of Hormuz. Iran would retaliate by closing the strait entirely, cutting 20 million barrels a day from global supply. Brent would spike to $150 a barrel, triggering a global recession. Pakistan's foreign-exchange reserves would collapse within 30 days, forcing Islamabad to default on its IMF programme and seek emergency funding from China. The Pakistan-China relationship would pivot from energy cooperation to full-scale financial rescue, a move that would accelerate Beijing's influence over Islamabad's economic policy. For India, the choice would be stark: either defy US sanctions and import Iranian oil via Chabahar, or watch its Afghan trade corridor wither. The most likely outcome is a hybrid: India would restart Chabahar on a limited scale, but only if Russia agrees to guarantee the oil supply via the eastern corridor. The risk is that Washington imposes sanctions on Indian entities, a move that would freeze trade finance and deepen India's current account deficit. The last time South Asia faced a full blockade was during the 1973 oil shock, when Pakistan's GDP contracted by 6 % and India's growth stalled at 1.2 %. The scars of that crisis still shape regional policy today.
Path three: de-escalation and regional realignment The least likely but most desirable path is a backchannel deal between Washington and Tehran that preserves the current pause. The contours of such a deal would include a US commitment to lift some sanctions in exchange for Iran halting uranium enrichment and ceasing attacks on Gulf shipping. For South Asia, the immediate benefit would be stable oil prices and the resumption of Iranian gas flows to Pakistan. Islamabad would finally meet its IMF targets, while Delhi could mothball its naval deployment to the Gulf. The deeper consequence would be a regional realignment: China would lose leverage over Pakistan's energy sector, while India could accelerate its Chabahar project without fear of US retaliation. The risk is that the deal unravels within months, as it did after the 2015 nuclear accord. The last time South Asia enjoyed a sustained lull was between 2021 and 2023, when indirect US-Iran talks in Muscat kept the Strait of Hormuz open. The talks collapsed when Washington demanded Iran halt its ballistic-missile programme, a red line Tehran refused to cross. The lesson for 2026 is that any deal must address Iran's regional influence, not just its nuclear programme. Without that, the pause will remain fragile, and South Asia's energy security will stay hostage to the next crisis.
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Key Takeaways
- If Trump orders strikes on Iran, Brent crude could surge past $120 a barrel within weeks, erasing Pakistan's fragile IMF bailout gains and forcing Islamabad to ration electricity for the first time since 2022.
- India would face a strategic choice: revive Chabahar port at the risk of US sanctions or watch its Afghan trade corridor collapse under renewed Hormuz risk.
- The real regional flashpoint is not the Strait of Hormuz itself, but the $2 billion China-funded Iran-Pakistan gas pipeline, whose survival hinges on whether Beijing can shield Islamabad from US secondary sanctions.
