Business Recorder
Consider the chain of events that unfolds when missiles are fired near the Strait of Hormuz. Within hours, underwriters in London begin cancelling or repricing war risk insurance policies for vessels transiting the Persian Gulf. Before a single barrel of oil is disrupted, the invisible machinery of the global reinsurance market has already begun transmitting the shock to countries that had no part in starting the conflict. Pakistan is one of them. The International Monetary Fund (IMF), which has bailed out Pakistan 24 times and is currently administering its largest-ever programme, has never once factored this mechanism into how it prices Pakistan’s vulnerability. Also read: IMF mission ends, FY2027 budget talks to continue ‘in the coming days’ I work in reinsurance, the wholesale layer of global risk transfer where large risks are pooled, priced, and distributed across institutions. I have spent more than a decade dealing with marine war risk covers and watching how the London market responds to geopolitical events. What I can say is: for countries like Pakistan, the reinsurance market is not an abstraction. It is a cost that lands directly on the price of every imported commodity, from crude oil to cooking gas to the fertiliser that grows our food. Here is how the mechanism works. When geopolitical tension rises in the Gulf, the Lloyd’s Joint War Committee expands its “high-risk area” designations. Insurers reprice or withdraw war risk coverage for vessels transiting those waters. In mid-2025, as tensions between the United States, Israel, and Iran escalated, hull and machinery premiums for Gulf-bound vessels rose more than 60% above their 2024 baseline. Also read: India approves USD 1.4bn maritime insurance pool, hikes inflation-linked allowances By early 2026, following US and Israeli airstrikes on Iran and Iran’s declaration that it would close the strait, the entire Persian Gulf had been placed on high-risk designation, reinsurance rates went tenfold in days. Major maritime insurers suspended or repriced coverage altogether. Those costs do not stay in London. They flow downstream, through shipping charter rates, through freight surcharges, through letters of credit that become harder to obtain, until they arrive on the balance sheet of the country that needs the cargo most. Pakistan needs it more than almost any other country. Roughly 81% of Pakistan’s oil imports transit through the Strait of Hormuz. In 2024, Pakistan imported approximately $13.96 billion in crude oil and petroleum products from Gulf countries alone, representing nearly a quarter of the country’s entire import bill. When Brent crude spiked roughly 34% in the days following the most recent escalation, the additional pressure on Pakistan’s current account was not the result of any domestic policy failure. It was the result of a war Pakistan had no hand in starting, transmitted through global reinsurance market in which Pakistan has virtually no influence. The Gulf also supplies Pakistan with something arguably more essential than oil: remittances . In fiscal year 2025, Pakistanis abroad sent home a record $38.3 billion. These are not investment flows from corporations. They are wages sent home by millions of Pakistani laborers, drivers, construction workers, service staff who depends on Gulf economies remaining stable and whose ability to remit depends on shipping lanes remaining open. When those lanes become uncertain, freight and insurance costs rise. When those costs rise, they are passed along. And when commodity prices spike in Pakistan, it is and ordinary Pakistani family that absorb the blow. None of this is accounted for in the way international financial institutions currently evaluate Pakistan’s debt sustainability or calibrate the conditions attached to bailout programmes. The IMF’s current Extended Fund Facility for Pakistan, approved in 2024 and reviewed as recently as May 2026, appropriately acknowledges climate shocks and domestic governance failures as risk factors. The Fund has even introduced a Resilience and Sustainability Facility to help Pakistan build climate resilience. But war risk premium shocks, systematic, quantifiable, and recurring, remain entirely outside the framework, which seems a category error. Climate risk and geopolitical risk operate through different channels and with different time horizons, but their economic impact on import-dependent, remittance-reliant economies like Pakistan’s is structurally similar. Pakistan delivered a primary budget surplus last year for the first time in a generation and still saw its current account exposed to shocks from a war it had nothing to do with. The IMF and World Bank should incorporate war risk premium indices, already publicly tracked through Lloyd’s Joint War Committee circulars and Additional War Risk Premium rate publications, into their debt sustainability assessments for vulnerable economies. When premiums breach defined thresholds, automatic debt service relief or emergency liquidity access should trigger without requiring a new programme negotiation. The existing Resilience and Sustainability Facility provides a workable template; extending its logic to cover geopolitical transmission risk is neither technically complex nor financially prohibitive. In the reinsurance market, we have a concept called “non-affirmative risk” exposures that are present in a portfolio but have never been explicitly acknowledged or priced. It is considered a dangerous blind spot, because what you do not name, you cannot manage. For Pakistan’s creditors, war risk premium transmission is exactly that: a non-affirmative risk. The exposure is real. The losses, when they come, are real. The only thing missing is the acknowledgment. That acknowledgment is long overdue! The article does not necessarily reflect the opinion of Business Recorder or its owners.
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