A dangerous and rapid climbing game of economic rupture is seized in South Asia, while nuclear neighbors, India and Pakistan can start towards prolonged confrontation with potentially very numerous consequences.
What started as a diplomatic gap following the tragic attack of the Pahalgams quickly implemented in a confrontation with high issues, marked by aerial reprisal space closures, the threat of water blocking and an increasing disruption of trade channels and cross -border supply chains.
The threat of India to suspend Pakistan access to shared water resources – a decision that calls into question the sacred nature of the Industrial Water Treaty – has attributed the fears of an unprecedented environmental and agricultural crisis downstream. Meanwhile, the closure of the airspace by the two nations has reacted the main corridors of commercial aviation, increasing costs, delaying freight and threatening a domino effect in the logistics and travel sectors of the region.
While the two countries harden their positions, experts warn that the economic cost already rises, with critical sectors such as aviation, trade, agriculture and foreign investments taking the first successes.
The situation is aggravated by the fragility of the feeling of investors, because the financial markets of the two countries react with anxiety to the spectrum of prolonged instability. The world that looks closely and calls for more and more de -escalation, South Asia is once again at the limit, not only conflicts, but economic benefits with global reverberations.
Aviation takes a direct blow
The closure of Pakistani airspace to Indian airlines on April 24 has already resulted in amazing losses for Indian carriers.
“The closure of the Pakistani airspace in Indian Airlines since April 24, 2025, has caused immediate economic losses estimated at around $ 800 million a year for Indian carriers,” said Dr. Khaqan Najeeb, former advisor to the Ministry of Finance.
Flights were released on the Oman Sea or forced to make supplies in Europe, increasing the journeys from two to 4.5 hours. This has increased fuel and crew costs, reduces the loading capacity and triggered a peak of the tariffs for Indian passengers – results that could finish demand and reach the travel and tourism sector of India.
“The closure also benefits non -Indian carriers, potentially moving from the market share of Indian airlines,” added Dr. Najeeb.
For Pakistan, however, economic losses are minimal. “With only small losses in civil aviation costs and limited flights to the east, the PIA should face a minimal impact,” he noted.
“Thus, the closure of Pakistan airspace imposes significant economic costs on Indian airlines thanks to higher expenses, disturbed routes and competitive disadvantages, while Pakistan faces negligible losses.”
The training effects of suspended routes have also been felt through the transport of air freight, disturbing supply chains and increasing freight costs for regional companies.
While the Pakistani airspace has since reopened, some experts claim that it could only be a stay. “The closure of airspace has a financial impact … but the airspace has been opened now. And this indicates that any closure, even in the future, will be short -lived, “observed Muhammad Faisal, security researcher in South Asia at the University of Technology in Sydney.
Commercial blockages tend regional trade
The bilateral commercial relationship between India and Pakistan had already been minimal, but the closure of land borders and airways increases logistics challenges. “India exports to Pakistan are estimated at around 1.2 billion dollars on an annual basis, mainly made up of pharmaceutical and organic chemicals … Trade suspension will stop these exports, resulting in immediate income for Indian exporters,” noted Dr. Najeeb.
On the other hand, exports from Pakistan to India is negligible – only $ 0.42 million per year – softening the blow for Islamabad. “The products imported by Pakistan of India are not unique … These products can come relatively quickly from other countries,” he added.
However, the disturbance extends beyond bilateral flows. India trade with Afghanistan – including agricultural imports worth $ 640 million – largely depends on land routes crossing Pakistan. The recent closure frozen this corridor, affecting the Indian markets which depend on Afghan products and interrupting Indian exports to Afghanistan worth more than $ 300 million.
“Tensions cause substantial disruptions on roads and have a negative impact on businesses in the region,” warned Dr. Najeeb. “This instability slows economic growth, limits job creation and hinders development, not only affecting the two countries but also their neighbors.”
“Although no immediate impact of tensions is planned on credit ratings from the two countries, de -escalation can limit the lasting negative effects on sovereign solvency.”
The economist Ammar Habib has minimized the short -term commercial impact, stressing that Pakistan has not negotiated directly with India on a considerable scale for more than five years now, so the impact would be negligible. “He added:” The air corridors generally reopen once the air strikes calm down. “
Water: The next flash point?
The veiled threat of India to unilaterally suspend the access of Pakistan to its part of the river waters under the Water Treaty in Indus (IWT) stimulated the alarm to Islamabad and beyond. “International law and established standards protect the rights of the lower bank countries … The treaty explicitly prohibits the unilateral actions which harm the water rights of the other party,” said Dr. Najeeb. He described such a decision as a “violation of Pakistan’s legitimate rights as a lower roof state”.
Faisal said the threat of water posed a more serious medium -term risk. “On the economic impact of the threat of water … The impact will be limited (in the short term, but in the medium to the medium, it will have a significant economic impact, and Pakistan must prepare now to manage such a possibility.”
The financial markets react – but the rating agencies are stable
The growing situation has also shaken the financial markets. “Overall, all sectors have gone down,” said Sana Tawfiq, research manager at ARIF Habib Limited. “In the rental sector, it was 7.3%; in refineries, 7.1%; in engineering, 6.4%; in technology, 5.9%. ” However, she noted that global investors have not shown significant panic – neither Eurobond yields nor credit ratings have reacted spectacularly. “In the leasing sector, it was 7.3%; in refineries, 7.1%; in engineering, 6.4%; in technology, 5.9%. ” However, she noted that global investors have not shown significant panic – neither Eurobond yields nor credit ratings have reacted spectacularly.
“Despite the increased geopolitical risks, the notation of Moody’s gave Pakistan remained B3 … so that, in a way, was a positive thing,” she added. Referring to the continuous support of the International Monetary Fund (IMF) to Ukraine in wartime, it underlined: “The tranche will also be published, hopefully, Pakistan recently obtained the head of the IMF executive council recently.
Backchannels, diplomacy and strategic realignments
Despite the loaded atmosphere, efforts are underway to defuse tensions by diplomacy. “The Pakistani authorities have confirmed that the advisers of national security and the directors general of military operations have contacted Dr. Najeeb, stressing that the negotiations of the bank and the economic diplomacy remain essential.
“Pakistan has actively committed diplomatically, in particular to the United Nations … and called for an international survey (in the attack by Pahalgam),” said the economist.
“It is very important to realize that our authorities acted with restraint, maturity and measured self -defense.”
“Backchannel negotiations and economic diplomacy remain vital tools for de -escalation, crisis management and the implementation of a possible dialogue.
“International mediation and coordinated pressure from the main stakeholders can create a space for these discreet commitments, in particular the persuading Indian authorities, which have launched air strikes and drones on Pakistan under a presumptuous pretext, without a evidence linking the tragic incident,” added Dr. Najeeb.
Faisal noted that international mediation is unlikely, although “the international community is the most likely to continue to call both sides to defuse and to exhale direct talks”. He also equaled climbing to broader strategic changes: “It is the demonstration of an extended gap of national power between India and Pakistan … New Delhi feels embroidered to extend its regional influence.”
“Pakistan, despite economic challenges, has the military potential to maintain strategic balance with India.”
The veteran journalist and political analyst Mazhar Abbas warned of complacency. “War is expensive, war is dangerous, especially between the two nuclear states … The next few days are important for both.” He added: “The world must play a role before it is too late.”
In the middle of the rise in tensions, Pakistan advances efforts to attract foreign investments. Khurram Schehzad, advisor to the Minister of Finance, said: “Despite the conflict, we continue with the visit (in London) and meet all investors, civil servants, Pakistan well … We had solid comments and interest in investing in Pakistan.”
The upcoming road
In the middle of spiral rhetoric and disturbed corridors, Pakistan economic managers prioritize stability. “The government will focus on national security first,” said Habib without hesitation. Meanwhile, Faisal highlighted the importance of staying the course with the IMF program: “The disbursement of the IMF tranche in Pakistan will tell the world markets that Pakistan focuses on economic stability despite tensions with India.”
While the world looks closely, the question remains whether economic rationality and diplomatic channeaux can prevail over populist policy and military posture. For the moment, costs – in lost trade, disturbed connectivity and regional anxiety – continue to climb.