Economy
Can Pakistan’s peacemaker role in Iran war give it economic boost?
Pakistan’s role in facilitating a peace agreement during the U.S.-Iran war has earned it broad diplomatic praise, potentially opening doors to economic advantages. However, analysts doubt whether these benefits will be enough to address the issues within Pakistan’s economy.
Prime Minister Shehbaz Sharif and army chief Field Marshal Asim Munir attended talks between Iran and the U.S. in the Swiss town of Buergenstock last weekend, the culmination of Pakistan’s months-long role in one of the world’s most consequential diplomatic negotiations.
“This guy. What’s up, man?” U.S. Vice President JD Vance said upon seeing Munir in the resort town before giving the army chief a hug.
Both sides, along with several world leaders, have thanked Islamabad for helping ease a conflict that could have disrupted the Strait of Hormuz for a long period, choked global oil supplies and shattered the world economy.
The breakthrough has raised Pakistan’s profile and analysts say the country of 250 million people has an opportunity to convert that goodwill into some gains for an economy marked by decades of boom and bust.
But they said any benefits were unlikely to fix deeper structural issues, including social and economic inequity, a narrow tax base and repeated International Monetary Fund (IMF) bailouts.
Pakistan is targeting economic growth of 4.0% and inflation of 8.2% for the coming fiscal year, compared with 3.7% projected growth in fiscal 2026, which ends in June, and 6.7% average inflation in the July-May period of the outgoing year.
“A nation that delivers stability at home and helps advance stability abroad becomes a more credible destination for investment,” said Khurran Schehzad, adviser to Pakistan’s finance minister.
“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.”
Many analysts are expecting some largesse from the U.S., although there have been no signs of any such windfalls yet.
Alex Vatanka, senior fellow and director of the Iran program at the Middle East Institute in Washington, said one gain for Pakistan was the “huge potential to be a more integrated part of the broader Middle East,” and eventually forging broader economic partnerships in the region that would also encompass defense.
Another possibility was that sanctions relief on Iran could allow “huge trade between Iran and Pakistan,” particularly through their Balochistan land border, said Miftah Ismail, a former finance minister.
Seen this before
After the Sept. 11, 2001, attacks and the U.S. invasion of Afghanistan, alignment with Washington helped secure debt rescheduling from more than a dozen bilateral creditors, renewed support from the IMF and other multilateral lenders, and U.S. assistance. But Pakistan failed to take advantage because of structural weaknesses, analysts say.
Khurram Husain, an economic commentator and journalist, said the current situation was similar to post-9/11, but with one crucial difference: that moment came at “the start of a long ruinous war in which Pakistan had to play a frontline role,” while this time “Pakistan is playing the role of a peacemaker.”
That distinction means Pakistan’s leverage this time comes from being useful to multiple sides simultaneously – Washington, Tehran, Gulf states, Türkiye and China.
Former finance minister Ismail said the diplomatic role had enhanced Pakistan’s international prestige, but that had no effect on the high costs, weak exports and external repayments that keep it dependent on the IMF.
“Our house is in such disorder that foreigners can’t really help us unless we help ourselves,” he said. “Nothing here in this war changes that and we will be continually dependent on the IMF.”
Asim Ijaz Khawaja, a professor at Harvard University and director of the Harvard Center for International Development, said Pakistan should resist short-term financial concessions that do not raise productivity.
Instead, he said, Pakistan should seek academic exchanges and scholarships, preferential market access for textiles and IT services, technology transfer and green investment frameworks.
Hamish Falconer, Britain’s minister for the Middle East, thanked Islamabad for its peacekeeping role during a visit last week and told Reuters the U.K. saw “huge scope for deepening trade links” with Pakistan and that a British trade minister was expected to visit in the coming months.
‘Peace pivot’
Diplomats from two other Western countries have also said their governments are exploring strengthening economic ties following Islamabad’s peace efforts. They did not wish to be identified further.
Atif Mian, professor of economics, public policy and finance at Princeton University, said Pakistan should avoid treating diplomacy as another route to deposits, rollovers, or IMF-style relief.
The real prize, he said, was a “peace pivot” – external and domestic – built on regional trade, energy links with Iran, and deeper integration with the Gulf and Türkiye through exports, technology transfer and co-dependent industries.
Türkiye has finalized its approval process for a digital economy partnership agreement among members of the Organization of Turkic States (OTS), bringing the bloc closer to a new framework for digital trade and economic integration.
The law approving the ratification of the “Digital Economy Partnership Agreement among the Governments of the Member States of the Organization of Turkic States” was published in the country’s Official Gazette on Tuesday, the Trade Ministry said.
With the move, Türkiye became the third country after Azerbaijan and Uzbekistan to complete its internal approval process for the agreement.
The deal will enter into force after Kyrgyzstan and Kazakhstan also complete their domestic approval procedures.
The ministry said the agreement is designed to remove barriers to e-commerce, digital services and cross-border data-based economic activities among Turkic states, while establishing common rules for a more integrated and predictable digital economy framework.
It is also expected to strengthen commercial and technological integration across the Turkic world, support businesses’ access to digital markets, encourage the use of innovative technologies and increase regional competitiveness.
The agreement includes detailed provisions on preventing barriers to payments and money transfers, paperless trade, electronic transaction frameworks, logistics, electronic invoicing, express delivery services, electronic payments, national supplier databases, electronic signatures, commercial electronic messages, online consumer protection and personal data protection.
It also covers cooperation in small and medium-sized enterprises (SMEs), financial and technological fields, cybersecurity and competition policy.
The agreement was signed on Nov. 6, 2024, during the 11th Summit of the Organization of Turkic States in Bishkek, Kyrgyzstan, attended by President Recep Tayyip Erdoğan.
The ministry said the agreement would help Turkic states deepen cooperation based on shared values and contribute to global efforts to shape digital trade rules.
Business activity in the eurozone remained in contraction territory in June, but it picked up pace compared to a month earlier, a key survey showed Tuesday, thanks to easing price pressures linked to the Middle East war.
The eurozone purchasing managers’ index (PMI) published by S&P Global, an important gauge of the economy’s overall health, registered a reading of 49.5 this month – a three-month high – after 48.5 in May.
A reading above 50 indicates growth, while a figure below 50 signals contraction.
“The eurozone economy is showing enough resilience to just about stay out of recession,” S&P chief business economist Chris Williamson said in a note.
“The flash PMI registered only a slight drop in business activity in June, meaning the survey is indicative of unchanged GDP over the second quarter,” he said.
After a preliminary peace deal between Iran and the United States, the tourism industry hopes for a rebound with more visitors expected to return later in the year to the Middle East and the nearby region, including the island of Cyprus and Türkiye.
“There is welcome news of an easing in the recent downturn in services activity, with tourism and leisure-related industries seeing signs of recovering demand after the initial disruptions from the war in the Middle East,” he added.
That fledgling recovery was, however, accompanied by “sustained falls” in new business, the survey found.
Manufacturing activity continued to grow, recording a figure of 51.3 in June, below the 51.6 recorded last month.
The overall picture appeared better than in previous months after the war in the Middle East triggered a surge in energy costs worldwide.
Household inflation expectation in Türkiye improved slightly in June, while those of market participants and the real sector remained broadly unchanged, a survey published by the country’s central bank showed on Monday.
According to the Central Bank of the Republic of Türkiye (CBRT), 12-month ahead annual inflation expectations of households decreased 3.38 percentage points to 46.13%.
Moreover, for June 2026, 12-month ahead annual inflation expectations decreased by 0.01 points compared to the previous month for market participants, falling to 23.81%. For the real sector, the figure remained unchanged at 33.10%.
The 12-month ahead expectations among the household category were recorded at the lowest level this year, marking an improvement from 51.56% in April and 49.51% in May, according to the CBRT survey.
Turkish officials had often in the past emphasized rigidness in inflation expectations, particularly among households, while also indicating that the improvement in inflation expectations contributes to the disinflation process.
The disinflation process has, however, slowed down in the face of rising energy prices following the start of the U.S.-Israel-Iran war in February.
The consumer price index (CPI) increased 32.6% from a year ago in May, up from 32.4% in April, official data showed earlier this month.
CBRT raised its year-end interim inflation target to 24% from 16% last month, while at the time warning that the short-term inflationary effects of the Iran war would remain “pronounced.”
The bank, in its last monetary policy committee (MPC) meeting, also decided to keep rates on hold, at 37%, citing that it is closely monitoring “the impact of geopolitical developments on the inflation outlook.”
The bank thus joined many of the global peers, including the Federal Reserve (Fed) and the Bank of England (BoE), which similarly opted to keep rates unchanged, while following the effects of the war.
Yet, the recent breakthrough in talks between the U.S. and Iran has resulted in oil prices easing to pre-war levels, boosting the sentiment in global markets and providing a sign of relief for importing countries.
Earlier this month, while pledging that the government’s disinflation stance remains “firm,” Treasury and Finance Minister Mehmet Şimşek said that inflation this year might be in the “mid-20s, if not high 20s.”
The banking giant BBVA, in its research published last week, said it expects the disinflation process “to remain broadly on track” against a softer growth backdrop in the short term.
“Persistent inflationary pressures and external uncertainties warrant a more cautious policy outlook, while selective easing is likely to continue within an overall restrictive policy mix,” it added.
In a statement on Monday, evaluating the survey, Şimşek reiterated they “continue to work with determination in line with our disinflation target.”
The escalation of geopolitical developments in increasing energy prices has created downward pressure on the short-term inflation outlook, negatively affecting expectations, he said in a post on the social media platform X.
“By utilizing the fiscal space we created through our program, we swiftly and effectively implemented the necessary measures, particularly the sliding scale mechanism, to prevent a permanent deterioration in expectations,” he added, referring to a special system limiting the increase in fuel prices to be passed onto consumers.
He also cited that in June, household inflation expectations for 12 months ahead “improved by 3.4 points compared to the previous month.”
“We expect the normalization of energy prices, as geopolitical tensions ease, to support the improvement in expectations,” he noted.
Household inflation expectation in Türkiye improved slightly in June, while those of market participants and the real sector remained broadly unchanged, a survey published by the country’s central bank showed on Monday.
According to the Central Bank of the Republic of Türkiye (CBRT), 12-month ahead annual inflation expectations of households decreased 3.38 percentage points to 46.13%.
Moreover, for June 2026, 12-month ahead annual inflation expectations decreased by 0.01 points compared to the previous month for market participants, falling to 23.81%. For the real sector, the figure remained unchanged at 33.10%.
The 12-month ahead expectations among the household category were recorded at the lowest level this year, marking an improvement from 51.56% in April and 49.51% in May, according to the CBRT survey.
Turkish officials had often in the past emphasized rigidness in inflation expectations, particularly among households, while also indicating that the improvement in inflation expectations contributes to the disinflation process.
The disinflation process has, however, slowed down in the face of rising energy prices following the start of the U.S.-Israel-Iran war in February.
The consumer price index (CPI) increased 32.6% from a year ago in May, up from 32.4% in April, official data showed earlier this month.
CBRT raised its year-end interim inflation target to 24% from 16% last month, while at the time warning that the short-term inflationary effects of the Iran war would remain “pronounced.”
The bank, in its last monetary policy committee (MPC) meeting, also decided to keep rates on hold, at 37%, citing that it is closely monitoring “the impact of geopolitical developments on the inflation outlook.”
The bank thus joined many of the global peers, including the Federal Reserve (Fed) and the Bank of England (BoE), which similarly opted to keep rates unchanged, while following the effects of the war.
Yet, the recent breakthrough in talks between the U.S. and Iran has resulted in oil prices easing to pre-war levels, boosting the sentiment in global markets and providing a sign of relief for importing countries.
Earlier this month, while pledging that the government’s disinflation stance remains “firm,” Treasury and Finance Minister Mehmet Şimşek said that inflation this year might be in the “mid-20s, if not high 20s.”
The banking giant BBVA, in its research published last week, said it expects the disinflation process “to remain broadly on track” against a softer growth backdrop in the short term.
“Persistent inflationary pressures and external uncertainties warrant a more cautious policy outlook, while selective easing is likely to continue within an overall restrictive policy mix,” it added.
In a statement on Monday, evaluating the survey, Şimşek reiterated they “continue to work with determination in line with our disinflation target.”
The escalation of geopolitical developments in increasing energy prices has created downward pressure on the short-term inflation outlook, negatively affecting expectations, he said in a post on the social media platform X.
“By utilizing the fiscal space we created through our program, we swiftly and effectively implemented the necessary measures, particularly the sliding scale mechanism, to prevent a permanent deterioration in expectations,” he added, referring to a special system limiting the increase in fuel prices to be passed onto consumers.
He also cited that in June, household inflation expectations for 12 months ahead “improved by 3.4 points compared to the previous month.”
“We expect the normalization of energy prices, as geopolitical tensions ease, to support the improvement in expectations,” he noted.
Households in Türkiye were less pessimistic in June as the consumer confidence rose to the highest level in just over three years, official data showed on Monday.
The consumer confidence index rose to 87.9 in June from 85.8 in May, according to the Turkish Statistical Institute (TurkStat).
Moreover, this was the highest reading since May 2023. Nonetheless, a score below 100 indicates a pessimistic outlook.
The financial situation expectation of households over the next year improved, with the corresponding index rising to 89.5 from 87.9. Similarly, the index measuring the general economic situation over the next twelve months improved to 83.9 from 81.4. The index measuring the financial situation of households at present increased to 72.3 from 69.2.
The survey revealed that the sub-index for assessment on spending money on durable goods over the next 12 months remained more positive and strengthened to 105.9 from 104.5.
China announced Monday it added MP Materials, USA Rare Earth, as well as eight other U.S. entities, which it claimed are linked to the U.S. military, to its export control list in retaliation for Washington placing several Chinese companies under restrictions this month.
Aveox, a motor manufacturer for mission-critical applications, was also among those placed on the list, which halts Chinese dual-use exports to the companies.
Pentagon-backed MP Materials, which operates the only active rare earth mine in the U.S., and USA Rare Earth are both involved in the mine-to-magnet supply chain.
The three U.S. companies were not available for comment outside of business hours.
The measures are a response to the “U.S. government’s malicious practice” and were taken to safeguard national security and interests, as well as to fulfil international obligations such as non-proliferation, China’s Commerce Ministry said in a statement on Monday.
“Organizations and individuals in any country or region are prohibited from transferring or supplying dual-use items originating in China to those entities,” it said, adding that export activities should be stopped immediately.
The move amounts to a full ban on dual-use exports to the named firms, tightening rules that previously only required export licences.
Analysts said, however, that China’s actions were a largely symbolic response to the Pentagon’s 1260H list of Chinese tech companies it believes to be aiding the Chinese military. The list was updated this month to include e-commerce giant Alibaba, internet search provider Baidu, and automakers BYD and NIO.
“Most of the companies are U.S. defense industry players, or they have close connections with the U.S. government… Those companies are not going to do business in China, so the impact will be quite symbolic,” said George Chen, partner for Greater China at the Asia Group, a geopolitical advisory firm.
“Beijing’s move today is a proportional response to the Department of War’s 1260H list.”
In a separate notice, China’s finance ministry said it has decided to take measures against 46 U.S. companies. Chinese buyers are now barred from procuring any products manufactured by them, though U.S.-funded enterprises operating in China can still do so.
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