Pakistan is looking to capitalize on its role in easing tensions between the United States and Iran, with officials signaling that improved regional stability could pave the way for formal energy trade with Tehran, boost investor confidence, and create new trade and investment opportunities. The development follows the signing of the Islamabad Memorandum of Understanding last week, which marked a diplomatic breakthrough after months of heightened tensions.
Pakistan's Mediation Role
Pakistan emerged as a key facilitator in efforts to reduce hostilities between Washington and Tehran since the onset of the war in Iran. Islamabad hosted early high-level contacts between the two sides and supported negotiations that led to the memorandum. Iranian President Masoud Pezeshkian visited Islamabad on Tuesday, where both sides pledged to deepen cooperation and build on the recent diplomatic momentum. Pakistan is seeking to expand regional trade, attract foreign capital, and sustain an economic recovery.
Economic Opportunities Ahead
Finance Adviser Khurram Schehzad told Arab News, “Economic stability, policy continuity and diplomatic credibility together can improve investor confidence, strengthen economic partnerships and create new opportunities for trade and investment.” He added, “A growth-oriented economic agenda, coupled with a reputation as a force for peace and stability, places Pakistan in a uniquely favorable position to attract investment into its people, infrastructure, technology and future growth sectors.”
Officials in Islamabad are now assessing the potential economic benefits of a lasting thaw between Washington and Tehran. One of the most immediate gains could be the formalization of trade with Iran, particularly in the energy sector. A senior finance ministry official, speaking on condition of anonymity, said, “We can do the energy trade with Iran. Earlier it was informal, now it can be formal.”
Informal Trade along the Border
Pakistan and Iran share a more than 900-kilometer border, across which fuel and other goods have long moved through informal channels. Official trade remains limited due to sanctions on Tehran, but Pakistani officials say significant volumes of unofficial commerce already take place, especially in petroleum products. Last week, Pakistan’s Investment Minister Qaiser Ahmed Sheikh and Iranian Ambassador Reza Amiri Moghadam reaffirmed their commitment to raising bilateral trade to $10 billion through greater economic engagement and the development of special economic zones along the border.
The finance ministry official added, “That trade, exchange and investment will be much better in this region,” noting that the benefits of a peace agreement would extend beyond Pakistan-Iran ties. Improved regional stability could make the wider region more attractive to international investors, including those from the United States. The US is Pakistan’s largest trading partner, with bilateral trade reaching $8.38 billion in fiscal year 2025, according to central bank data. Trade in the first 11 months of the current fiscal year totaled $8.58 billion, driven largely by textile exports.
Potential for Energy Imports
Another senior information ministry official, speaking on condition of anonymity, said Pakistan could benefit economically if regional tensions continue to ease and sanctions on Iran are gradually relaxed. “Pakistan being a neighboring country, Pakistan being a trusted partner, will obviously reap its economic benefits,” the official said. Asked whether Pakistan could eventually import crude oil from Iran, the official said it was too early to make definitive assessments but did not rule out greater energy cooperation. “At this point in time, nothing can be confirmed. But obviously trade will increase and it will increase for different commodities,” he said.
The official also noted that reconstruction efforts in Iran could eventually create additional opportunities for commercial cooperation, though discussions remain at an early stage.
Budget Approval and Economic Outlook
Pakistan’s parliament approved the government’s fiscal year 2026-27 budget on Tuesday as authorities seek to accelerate growth, attract investment, and strengthen external accounts following a period of economic stabilization under an IMF-backed reform program. Schehzad emphasized that Pakistan’s diplomatic role has reinforced its image as a reliable partner at a time when investors are increasingly looking for stability. “A nation that delivers stability at home and helps advance stability abroad becomes a more credible destination for investment,” he added.
