Pakistan is witnessing how Russia’s war in Ukraine is causing ripple effects, and as expected, it hasn’t been good.

The fallout from Russia’s invasion of Ukraine in February 2022 spared few countries. Pakistan is among those affected and it is finding that maintaining a strategic alliance with Russia while trying to remain neutral in the conflict is exceedingly difficult. Here’s an exploration of how the war in Ukraine has strained Pakistan’s economy and the country’s response.

The war in Ukraine triggered a surge in global oil prices. With Russia standing as one of the world’s largest oil producers and exporters, sanctions imposed on its oil and gas sectors by the U.S. and its allies have disrupted supplies and injected uncertainty into markets.

In March 2022, Brent crude prices skyrocketed to nearly $130 per barrel, marking a 43 percent increase from February 2021. As a net importer of oil, Pakistan bore the brunt of a harsh terms-of-trade shock due to these inflated oil prices. According to the World Bank, Pakistan’s oil import bill swelled by 75 percent in 2022, tallying up to $18.5 billion. This surge exerted pressure on Pakistan’s current account deficit, foreign exchange reserves, fiscal balance, inflation rate, and economic growth. In response, Pakistan has explored diversification of its oil import sources, while curbing oil consumption through conservation measures and alternative energy sources.

Similarly, the conflict impacted global wheat prices. Russia, one of the world’s largest wheat exporters, saw the U.S. and its allies impose sanctions on its banking and financial sectors, which cater to Russia’s agricultural industry. This in turn hampered production and exports, with wheat prices doubling in real terms between June 2021 and April 2022. Additionally, because of Russia’s decision to all but embargo the export of wheat from Ukraine, this has led to food security issues in the face of soaring wheat prices.

Before the war, Pakistan imported nearly 1.3 million metric tons of wheat from Ukraine. According to the World Bank, Pakistan’s wheat import bill surged by 150 percent in 2022, touching $3 billion. The result: amplified food inflation, increased poverty, and social unrest. Pakistan responded by bolstering its domestic wheat production, offering subsidies and incentives to farmers, while also seeking diversified wheat import sources, including Kazakhstan, and Australia.

Trade relations between Pakistan and both Russia and Ukraine, as well as other conflict-ridden countries, have also been marred. In 2021, Pakistan’s trade with Russia amounted to $790 million, yielding a trade surplus of $270 million. Main exports to Russia included textiles, fruits, vegetables, rice, leather, and surgical instruments, while imports comprised iron and steel, fertilizers, machinery, chemicals, and minerals. These trade flows have been disrupted due to sanctions, transport complications, currency fluctuations, and security risks. Pakistan has endeavored to retain its trade ties with Russia, exploring sanction exemptions and alternative transport avenues, while also fortifying its trade relations with China, Iran, Turkey, and Central Asia.

Trade with Ukraine, accounting for $570 million in 2021, generated a trade deficit of $410 million for Pakistan. Primary exports included textiles, fruits, vegetables, rice, leather, and sports goods, with imports mainly constituting wheat, iron, steel, machinery, chemicals, and edible oils. Much like with Russia, trade disruptions have been extensive, due to similar sanctions, transport issues, currency variations, and security threats. Pakistan’s approach mirrors its strategy with Russia, seeking sanction exemptions and alternative transport options while working to enhance trade ties with other regional nations.

The conflict has also provoked geopolitical implications for Pakistan’s security and foreign policy. Pakistan’s strategic partnership with Russia, encompassing diplomacy, defense, nuclear energy, and technology transfers, has been jeopardized due to U.S.-led pressures to join the sanctions regime against Russia. Pakistan has strived to balance its interests by maintaining a neutral stance on the conflict, advocating for a peaceful resolution through dialogue, and leveraging its alliance with China as a counterbalance to U.S. influence.

Russia’s decision to terminate the Black Sea grain deal also dealt a blow to Pakistan’s economy. Amid a balance of payment-crisis, losing access to cheap grain dealt a double blow to Pakistan, exacerbating food insecurity and skewing its economic equilibrium. Pakistan has been striving to strike a delicate balance between geopolitical and economic considerations, importing oil from Russia while sourcing grain from Ukraine.

Moreover, Pakistan’s diplomatic relations with Ukraine, encompassing trade, education, culture, and tourism, have been threatened due to Russia’s insistence that Pakistan recognizes its annexation of parts of Ukraine. Mirroring its approach with Russia, Pakistan has sought to balance interests by adopting neutrality in the conflict, advocating for a peaceful resolution, and using its China partnership as a buffer against Russia’s influence.