Pakistan’s Economic Relations with Middle East

One of the contours of Pakistan’s foreign policy is to maintain and strengthen friendly relations with the Muslim world. It has actively played a role in mediating issues of Middle East pertaining to regional peace and stability. Even though the geopolitics of the Middle East and ties with Pakistan go hand in hand, Pakistan’s economic relations with Middle East have stood the test of the time.

The Shifting Sands of Middle East and Pakistan

Pakistan’s relations with the Gulf States have recently been topsy-turvy due to the geopolitical realities of the Middle East, the recent rapprochement of GCC countries and Israel, and the shift in GCC’s approach towards India; owing to its large market and strategic significance in the global and regional politics. Moreover, the ties between Pakistan and GCC countries have been affected by many reasons; one of them being the insignificant stance of the Organization of Islamic Cooperation (OIC) on Kashmir after its special status was revoked. It was perceived to be in return of the Indian monetary blessings over the GCC countries. Secondly the normalization of the ties between the Arab countries and Israel left Pakistan annoyed who called this normalization as a compromise on the Palestinian cause.

Pakistan-Turkey Entente 

The Muslim nationalism that is embedded in both of the nations through the years till the contemporary period, have shaped the aspects of Pakistan-Turkey bilateral relationship. Turkey’s call for the Kashmiri cause changed the course of the geopolitics that followed. Both the states have been enjoying a strengthened strategic partnership in the recent years following a changing global order. The two countries share a bond that focuses on different elements of national power i.e. military, geostrategic location, and a large population that drives defense, diplomatic, economic, technological and political cooperation. On January 23, 2021, Turkish President Recep Tayyip Erdogan, at a ceremony for Turkish built naval vessels and a corvette for the Pakistan Navy, stated that the defense and industrial cooperation between Pakistan and Turkey is of a great potential, while describing both the states as brotherly countries.

The leadership of both the states has vowed to strengthen their relation in the economic domain through Pakistan-Turkey Strategic Economic Framework announced in 2021. This framework underlines 71 items for boosting the trade and commercial ties between both the states. The bilateral trade between Pakistan and Turkey stands at about $800 million. Since the past 23 years, Pakistan’s exports to Turkey have improved at a rate of 3.35%, from being $149 million in 1995 to $328 million in 2019. Moreover, there is a need to further tap the Pakistan-Turkish economic potential by inviting Turkish investors to CPEC and strengthening the Free Trade Agreement and realizing the importance of citizen diplomacy through people-to-people contacts.

Iran-Saudi Rivalry and Pakistan 

Pakistan has a population of about 200 million where a Shia minority exists alongside a Sunni majority. It has been aiming for improving its ties with Iran and Kingdom of Saudi Arabia at the same time due to the fragile regional stability. Pakistan has been playing a role of a mediator in Middle Eastern conflicts due to the imperatives of economic relationship that Pakistan has with both the rivals. Historically, Saudi Arabia has been a helping hand to Pakistan during its economic crisis. Pakistan depends heavily on petroleum imported from KSA. 80% of Pakistan’s oil imports come from UAE and KSA. Moreover, a large number of Pakistanis contribute to the Saudi workforce. The remittances that come through them contribute in the balance of payments. In case of military conflict between Iran and Saudi Arabia, the oil supply can be disrupted.

While disruption of the oil supply can have adverse consequences, the impacts on Pakistan can be disastrous. It can lead to an increase in oil prices, pushing the country towards inflation. Pakistan and Iran bilateral trade stands at $359 million. Both the states have repeatedly aimed to enhance their economic engagement. Pakistan and Iran are members of the Economic Cooperation Organization (ECO), launched in 1985 that focuses on transit trade, integrating the landlocked countries and cooperation in various fields to facilitate inter-regional economic activity. Moreover, the Iran-Pakistan gas pipeline that is stands halted, is significant for the development of Balochistan and the South Asian region. Due to the tumultuous relationship between the two Middle Eastern rivals, Pakistan should not compromise on its policy of neutrality. Pakistan needs to attract the Saudi investors to CPEC and assisting in the diversification of the Saudi economy. Keeping in view the Saudi financial support in times of need, and Iran as a natural trading partner as a neighbor, Pakistan should avoid being drawn in their rivalry.

Geo-economic Prospects in Middle East for Pakistan

  • Middle East holds importance for Pakistan in terms of foreign aid and remittances. Pakistan recognizes the importance of cross-border trade associated with the Middle Eastern region that can help in evolving the geo-economic prospects in the region. This aspect can be beneficial for Pakistan’s struggling economy.
  • Pakistan should restart the deliberations over a Free Trade Agreement (FTA) with the GCC countries to revitalize the regional trade. With an overall declined trajectory of trade, an FTA for the Middle East can be a golden opportunity for Pakistan.
  • Oman in this regard remains to be untapped economically despite the fact that Oman is relatively closer to Pakistan than the other Arab countries. Nearly 800,000 Pakistanis are working in Oman. Moreover, the value of Pakistan’s exports to Oman stands at approximately $118 million. So Pakistan needs to focus on forging economic ties with it along with defence cooperation.
  • Iran has been under tremendous pressure due to the halted oil export, currency deflation, and massive sanctions by the West that led to heightened inflation. Pakistan, through its political and diplomatic offices should work towards bridging the gap between GCC countries and Iran. Not only this, the Iran-China deal can be a positive sign for regional strategic projection. Keeping in view the Indian influence in the region, this deal can be a check on India in Pakistan’s backyard particularly the act of creating instability in Balochistan clandestinely.
  • UAE hosts the second-largest Pakistani diaspora. Pakistan’s exports to Dubai amount to $1.3 billion that witnessed an increase of 14% since 2020, and remittances from the UAE during March 2021 were $590 million. It signals the significance of UAE as a center of regional value chains. Pakistan needs to bolster its trade relations with UAE, especially through its participation at the Dubai Expo 2020.

Conclusion

Realizing the geo-economic prospects, Pakistan has evolved with a renewed Middle East Policy. Highlighting the economic cooperation that is based on trade, commerce, developmental and infrastructural projects, and tourism should be the priority of the policymakers. Pakistan is expected to adapt to the turning tables in Middle East, to secure its economic interests. In the wake of the shift towards focusing on geo-economics, Pakistan should adopt a robust policy to reorient itself in releasing this aspect of its relations with the Middle East.

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About Zukhruf Amin 5 Articles
The author is working as a Research Associate at COPAIR. She holds an MPhil degree in Peace and Conflict Studies from NDU. She has previously worked at the Institute of Strategic Studies, Research, and Analysis (ISSRA). Her areas of interest are South Asian Politics, Peace and Conflict Transformation, and Climate Change.