Beyond Politics: How Iran-Saudi Arabia Rapprochement Can Benefit Pakistan's Economy

Pakistan, a country of over 220 million people, is going through a severe economic crisis. After witnessing an economic boom and growth in the export sector, remittances, and government spending on social development, the country’s economy has taken a severe hit due to various political and economic factors. Pakistan has been facing economic challenges for quite some time now. The country’s Gross Domestic Product (GDP) was growing at 6% until March 2022. However, the military establishment under General Qamar Bajwa’s rule decided to take down the then Prime Minister of Pakistan, Imran Khan, forming an opposition alliance called the Pakistan Democratic Movement (PDM). In March 2022, the PDM tabled a vote of no-confidence motion in the National Parliament, which led to Imran Khan’s removal from the post of Prime Minister. The new government under Shahbaz Sharif immediately started reversing the economic policies of Imran Khan, which has resulted in a severe economic meltdown and depression. The country’s annual national inflation is standing at 31.5%, with weekly inflation at nearly 48%. Poor people are losing their lives under the rampage caused by the distribution of free flour bags in Ramadan. Socioeconomic classes have been disrupted, and salaried individuals are facing a hard time making ends meet.

In this dire situation, the restoration of ties between Iran and Saudi Arabia can be a silver lining for Pakistan’s economy. Historically, Pakistan has faced pressure from Saudi Arabia to not increase strategic ties with Iran and not to increase economic activity with Iran, resulting in Pakistan losing out on the economic synergy and benefit that it could have had with Iran as a neighbor. However, with the restoration of ties between Iran and Saudi Arabia, Pakistan can go into a closed economy with Iran and benefit from trade, which could help solve its economic problems.

What is a Closed Economy?

A closed economy is a system where a country limits its trade and economic relations with other countries. In a closed economy, the government controls the flow of goods and services, as well as capital in and out of the country. This system can be beneficial to a country’s economy because it can help protect domestic industries, reduce imports, and increase exports. However, it can also lead to a lack of innovation and competitiveness, as well as restrict the flow of information and ideas.

What is the potential of Iran as a neighboring country?

Iran is a country with immense potential for trade and export, offering a wide range of products and services to the world. With a population of more than 83 million people and a geographical location that makes it a gateway to both Asia and Europe, Iran has a strategic advantage in terms of international trade. In addition, the country boasts a high literacy rate, a strong education system, a growing research and development sector, and a skilled workforce, which together make it a hub for innovation and growth.

One of the major strengths of Iran is its abundant reserves of natural resources, including oil, gas, minerals, and metals. These resources have allowed Iran to build a strong economy and become a major player in the international energy market. Additionally, Iran has a well-developed mining industry, which produces a variety of metals and minerals, such as copper, zinc, lead, and iron ore. These resources can be used in a wide range of industries, including construction, manufacturing, and electronics.

Iran is also a leader in the fields of medical science and technology. The country has made significant advancements in areas such as stem cell research, organ transplantation, and cancer treatment. Iran is home to several world-renowned medical institutions and research centers, which have contributed to the development of cutting-edge treatments and therapies.

In addition, Iran has made significant strides in the field of nanotechnology, which has the potential to transform a wide range of industries, including electronics, energy, and medicine. The country has established several nanotechnology research centers and has developed a variety of products and applications based on this technology.

Another area in which Iran excels is the production of military equipment. The country has developed a variety of advanced weapons systems, including ballistic missiles, drones, and submarines. Iran’s military technology is regarded as among the best in the Middle East, and the country has exported its military equipment to a number of other countries in the region.

The Role of Iran in Balochistan’s Economic Development

The trade from Iran has been particularly beneficial for the people of Balochistan, which shares a border with Iran. Cheaper goods from Iran have helped lower the cost of living for the people in the region, especially those who live in remote and underserved areas.

Moreover, electricity from Iran has also been beneficial for Balochistan, which has long struggled with power shortages. Iran has been providing electricity to Pakistan through a cross-border transmission line, and Balochistan has been one of the main beneficiaries of this arrangement. The electricity supply from Iran has been helping to power homes, businesses, and industries in the region, boosting economic activity and improving the quality of life for the people in the region.

In addition to trade and electricity, Iran has also come to the rescue of Pakistan during times of crisis. For example, when trade with India was banned and domestic crop productivity was not sufficient, Iran provided Pakistan with much-needed supplies of tomatoes and onions. This helped stabilize food prices and ensured that people had access to essential food items at affordable prices.

Another important aspect of the Iran-Pakistan relationship is the peaceful and cordial border between the two countries. The Iran-Pakistan border is one of the least hostile borders and the least manned border off Pakistan. This has helped promote trade and people-to-people contacts between the two countries, and has also helped maintain regional stability.

How Can Pakistan Benefit from a Closed Economy with Iran?

Pakistan and Iran share a 909-kilometer-long border, which makes it a natural partner for trade and economic activity. Iran is exceptional in engineering and metallurgy, medicine and medical science, enriched with minerals and raw materials, enriched with gas and oil. On the other hand, Pakistan has an abundance of agricultural goods that Iran wants. By going into a closed economy with Iran, Pakistan can increase its trade and economic activity with Iran, which could help solve its economic problems.

Pakistan’s agricultural sector is one of the largest in the world, and the country produces a wide range of crops, including wheat, rice, maize, cotton, and sugarcane. These crops could be exported to Iran, which has a large population and a growing demand for food. Moreover, Iran has a highly skilled workforce and is exceptional in engineering and metallurgy, medicine and medical science, and nano-technology. Pakistan could benefit from Iran’s expertise in these areas and use them to develop its own economy. For example, Iran is known for its expertise in the medical sciences and nano-technology, and Pakistan could benefit from this expertise to develop its own medical, pharmaceutical industries and improve its health-care system.

Pakistan can also benefit from Iran’s expertise in various sectors, such as engineering and metallurgy. Iranian companies can help develop Pakistan’s infrastructure and industrial sector, creating jobs and generating economic growth. Pakistan can also offer its skilled workforce in exchange for technological transfer and expertise.

Iran is also enriched with minerals and raw materials, which could be exported to Pakistan to help develop its own industries. Iran has large reserves of minerals such as copper, iron, lead, zinc, and gold, which could be beneficial for Pakistan’s manufacturing and construction industries. Pakistan’s agricultural goods, such as rice, fruits, and vegetables, could also be exported to Iran to fulfill their food demands.

Moreover, the two countries could collaborate in the energy sector, as Iran is rich in oil and gas reserves, while Pakistan has a growing demand for energy. The two countries could work together to build pipelines and establish a network to transfer oil and gas from Iran to Pakistan. This would help Pakistan to reduce its dependency on imported energy, which has been a significant burden on the country’s economy.

In addition to economic benefits, a stronger relationship with Iran could also have positive implications for Pakistan’s security. Iran has always been a significant player in the region and shares a border with Pakistan. Iran could provide valuable support to Pakistan in its fight against terrorism, as the two countries have a shared interest in stabilizing the region. Iran and Pakistan can play a significant role in controlling terrorism in the region and containing the influence of groups like ISIS in Central Asia and Afghanistan. Pakistan has long been plagued by terrorism, and a partnership with Iran can help reduce the risk of extremist groups operating within the country’s borders.

Furthermore, the restoration of diplomatic ties between Iran and Saudi Arabia could have a positive impact on Pakistan’s economy. Pakistan has always had close ties with Saudi Arabia and has been a significant recipient of their financial aid. The restoration of diplomatic ties between Iran and Saudi Arabia could lead to more significant investment in the region and create new business opportunities for Pakistan. A strong Pakistan-Iran relationship can also help improve regional stability. This, in turn, can lead to a reduction in tensions with India. Pakistan has had a strained relationship with India for decades, with both countries engaging in military conflicts. A productive and skilled economy of Pakistan can help benefit the Gulf countries, including Saudi Arabia, and compel India to end its hostility towards Pakistan, thereby maintaining a healthy relationship in the region.

For many years, Pakistan has been suffering from sectarian violence, where Sunni-Shia tensions have been exploited by extremist groups to fuel conflict and create instability. This situation has been worsened by the rivalry between Iran and Saudi Arabia, as both nations have sought to exert influence in Pakistan and use sectarianism as a tool to further their interests. Therefore, if Iran and Saudi Arabia normalize their relationship, it could positively impact Pakistan by reducing sectarian tensions and extremist influence. Improved ties between these regional powers could also lead to a more peaceful Middle East, which would benefit Pakistan and the international community.

Pakistan has a significant Shia population that has experienced discrimination and marginalization. Improved relations between Iran and Saudi Arabia could help alleviate the suffering of this community and promote greater religious tolerance and coexistence in Pakistan. The normalization of ties between Iran and Saudi Arabia has the potential to reduce sectarian tensions and promote religious tolerance in Pakistan.

Additionally, a neutral foreign policy pursued by Pakistan could strengthen diplomatic and economic ties with both nations. Pakistan’s friendly relationship with Saudi Arabia could lead to economic and political support, especially regarding issues like Kashmir. Strengthening ties with the Gulf Cooperation Council (GCC) could offer new opportunities for economic cooperation. Closer relations with Iran would also improve regional security, and ties between China, Iran, and Pakistan are essential for the success of the China-Pakistan Economic Corridor and the larger Belt and Road Initiative (BRI).

The situation of Pakistan’s economy has been challenging, with high inflation, increasing interest rates, and a depleting foreign exchange reserve. The country’s economy has been struggling, and the IMF has not provided any significant bailouts. However, the restoration of ties between Iran and Saudi Arabia could provide a new opportunity for Pakistan to benefit from a closed economy with Iran. The two countries could collaborate in various sectors, including energy, agriculture, manufacturing, and construction, and create new business opportunities. This could help Pakistan to reduce its dependency on imported goods, stabilize its economy, and strengthen its security. The restoration of diplomatic ties between Iran and Saudi Arabia could also lead to more significant investment in the region, creating new business opportunities and benefitting Pakistan’s economy in the long run. Overall, it is essential for Pakistan to capitalize on this opportunity and work towards building a stronger relationship with Iran to overcome its economic challenges.

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