The current account posted a surplus of $427 million in Feb-26, which reduced the 8MFY26 deficit to $700 million, compared to a surplus of $479 million in the same period last year. There were no worries on the current account front, as oil prices were low and global supply chains were functioning smoothly. However, things have changed for the worse after the US-Israel attack on Iran, which responded by disrupting around 20 percent of oil and gas supply through the closure of the Strait of Hormuz. Oil prices have risen sharply, especially for countries like Pakistan that have a large share of oil imports coming from the Gulf region. RLNG supply has been cut to zero. Prices of oil derivatives, including plastics, fertilizers, and other products, are rising too. Freight and insurance premiums are growing at insane levels. The possible slowdown in GCC economies may hurt remittance flows to Pakistan in the medium term. All of these developments would have lasting effects on Pakistan’s trade, especially the import of oil and oil derivatives, and on remittance flows, as more than half of remittances came from the Middle East. Overall, the current account could come under severe pressure. Nonetheless, the story in February is not much different from that of the past few quarters. Imports are inching up amid stagnating exports, while the shining star remains the continued robust growth in remittances. Goods exports are down by 5 percent to $20.7 billion in 8MFY26, while goods imports are up by 9 percent to $41.8 billion. As a result, the goods trade deficit has worsened by 28 percent to $21.1 billion. The performance of goods trade in Feb-26 is no different from that of the first seven months. However, the services trade deficit shrank in Feb-26 due to a relatively lower volume of services imports, which were down by 4 percent year-on-year in February. On the other hand, services exports continued their upbeat performance, as IT and other business service exports are being preferred over domestic employment due to the large gap in taxation. Overall, the trade deficit in goods and services increased by 25 percent to $23.2 billion in 8MFY26. The primary income deficit shrank in February as there was a seasonally lower burden of debt servicing. On a month-on-month basis, the primary income deficit fell by half to $407 million. Remittances were down by 5 percent month-on-month during February, while in 8MFY26 remittances showed decent growth of 10 percent to reach $26.5 billion. Thus, in February, the fall in the primary income deficit and lower services imports improved the current account balance compared to January. Going forward, there might not be a large deficit in March, as remittance inflows are expected to remain strong owing to Eid-related flows, while the rise in the oil import bill could be partly offset by the absence of RLNG imports. In February, Pakistan imported $1.2 billion worth in petroleum group when Dubai crude averaged $68. Crude and petroleum product imports stood at $946 million, and now Dubai crude has more than doubled, while the increase in product prices is even steeper. That would surely increase the oil bill, and the increase might surpass the savings from the absence of LNG imports, which stood at $227 million last month. The longer oil prices remain high, the bigger the impact on Pakistan will be. It could have a ripple effect on other products, especially those produced using oil, including items in the textile group, agricultural inputs, chemicals, and so on. There might also be delays in exports and a fall in remittances. In such a scenario, for the SBP to manage the balance of payments while aiming to build reserves, it may have to resort to import rationing. At the top of the list could be automobiles, whose imports are growing as new Chinese cars are introduced almost every week. Transport group imports are up by 106 percent to $2.4 billion in 8MFY26, and they may face the SBP’s axe. Similar treatment could also be applied to machinery, including mobile phones. Testing times lie ahead. The situation is uncertain, and macroeconomic stability, which has stemmed from a manageable current account balance, is now in jeopardy. Interest rates are already moving up, with around a 100-basis point increase seen in the latest T-bills auction. The next hit could be to the currency. Keep watching.