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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.
