Like 9/11, Cold War, no windfall now: Pak bleeds as Iran-US crisis deepens

With Iran showing no interest in a second round of talks with the US in Pakistan, Islamabad now finds itself in an awkward bind. As the April 22 ceasefire deadline approaches and tensions simmer around the Strait of Hormuz, the proposed talks in Islamabad appear increasingly uncertain, teetering on the edge of collapse.

The uncertainty comes at a time when last-minute developments in Hormuz have raised the risk of escalation at sea, further complicating an already fragile diplomatic track. What was projected as a potential breakthrough venue for backchannel engagement now risks becoming irrelevant before it even begins.

Even as whatever remains of diplomacy between Tehran and Washington briefly passed through Islamabad in recent weeks, Pakistan’s media has turned critical, questioning the government’s inability to extract any tangible gains.

WHEN WAR FILLED PAKISTAN’S COFFERS

From the Cold War to the post-2001 war on terror, Pakistan leveraged crises to fill its coffers with aid, grants, and strategic payouts.

Historically, Pakistan’s strategic location has translated into economic advantage, with wars and global alignments bringing in grants, debt relief and reimbursements. But that equation now appears to be reversing.

Instead of inflows, recent tensions in the Gulf region have triggered capital flight, reserve depletion and mounting repayment pressures.

Looking back, Pakistan’s strategic position has previously attracted substantial financial support.

The year was 1979. The Soviet Union invaded Afghanistan, Pakistan’s neighbour. As the war raged along Pakistan’s frontier, the US offered a $400 million aid package. It was famously rejected by President General Zia-ul-Haq, who called it “peanuts.”

However, by 1981, a $3.2 billion military and economic assistance package was agreed upon, followed by a second phase of $4–4.2 billion between 1988 and 1993.

Additionally, Saudi Arabia provided parallel flows of $6-8 billion, while the United Nations system contributed another $3-5 billion for refugee assistance.

The World Bank and IMF further supported Pakistan with $5-7 billion in concessional finance and balance-of-payments relief, resulting in a total inflow of $20-27 billion during the 1980s, equivalent to $60-85 billion in today’s terms.

Following the events of 9/11, the United States released $600 million in emergency funds to Pakistan, and the Paris Club restructured approximately $12.5 billion of Pakistan’s debt. Congress also supported a $3 billion five-year package, allowing Pakistan to cancel $1.5 billion in debt to the US government.

Under President Pervez Musharraf, the US provided over $13 billion in military and economic aid, primarily through Coalition Support Funds, amounting to $45 billion in today’s dollars.

These financial inflows had a positive impact on Pakistan’s balance of payments, with total liquid foreign exchange reserves increasing from $3.23 billion in 2000-01 to $15.65 billion by 2006-07.

However, in 2026, despite international attention and diplomatic engagements, Pakistan’s geography did not translate into financial gains, resulting in an outflow of $5.7 billion against a reserve base of $16 billion.

SAME GEOGRAPHY, DIFFERENT OUTCOME

Cut to 2026. If the first two wars brought billions into Pakistan, the US-Iran conflict is now bleeding it dry. A country heavily dependent on oil and LNG flows through the Strait of Hormuz is grappling with capital flight, shrinking foreign reserves, and mounting bond repayments.

Earlier this month, the UAE asked Pakistan to immediately return its $3.5 billion deposited with the State Bank of Pakistan by the end of April.

As a result, Qatar and Saudi Arabia stepped in to offer $5 billion in support to keep Pakistan afloat and prevent a sharp depletion of its foreign reserves.

The vulnerability runs deeper than headlines. With nearly 80-85% of its oil imports tied to Gulf routes via Hormuz, any disruption quickly feeds into higher import bills, inflation, and external account stress. What once served as a geopolitical advantage is now turning into a structural liability.

The hard truth is this: the same country, but starkly opposite outcomes for its balance of payments.

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