Pakistan’s Self-Goal: No Trade, No Water—Now Gasping for Relief

After the brutal terror attack in Pahalgam that left over 26 civilians dead, India wasted no time in rolling out a barrage of diplomatic and economic countermeasures. While Pakistan denied any role, New Delhi stood firm in sending the message across that India holds zero tolerance for state-sponsored terror.

But in trying to retaliate, Pakistan may have landed a blow on itself. By cutting trade ties, suspending key agreements, and accusing India of “water warfare” over the Indus Waters Treaty, Pakistan is now deepening its own economic crisis. Soaring inflation, depleted reserves, and dependence on imports leave Islamabad ill-equipped for a standoff. What was meant to look like strength is fast turning into a self-inflicted economic wound.

Pakistan Cries “Water War”

One of India’s boldest moves was the suspension of the Indus Waters Treaty—a 1960 agreement brokered by the World Bank that governs the flow of rivers from India to Pakistan. Under this treaty, India provides around 80% of the total water flow of the Indus River system to Pakistan, despite being the upper riparian state.

Pakistan responded angrily, calling it an act of “water warfare,” and warned that any attempt to block or divert the water would be seen as an act of war. It vowed to challenge India’s decision legally, saying the treaty cannot be scrapped unilaterally.

In fact, a PMO statement by Pakistan reflected how jittery the administration has become with India’s move of suspending the Indus Waters Treaty. The statement by PMO in Pakistan said that water is a vital national interest of Pakistan, a lifeline for its 240 million people, and its availability will be safeguarded at all costs. 

Trade Suffers, Pakistan Feels the Burn

In another retaliatory move, India also closed the Attari Integrated Check Post (ICP), effectively shutting down the key land trade route between the two countries. This route handled trade worth nearly Rs 3,886 crore last year—its highest in five years.

India has exported such basic items as vegetables, plastic granules, poultry feed, and pharmaceuticals, while importing dry fruits, cement, rock salt, and gypsum from Pakistan. 

With the trade route shut, Pakistan stands to lose more given its heavy reliance on Indian exports for food and industrial supplies. The number reflects it all. Historically, India has always had a trade surplus with Pakistan, with exports from India to Pakistan growing from just $286.94 million in 2003–04 to a peak of $2.07 billion in 2018–19. Imports from Pakistan also rose significantly during that period, but that constituted a minuscule part as far as India’s import basket or trade was concerned. 

Ironically, just when trade between India and Pakistan was starting to recover, it’s been cut off again — and it's Pakistan that stands to lose more. By halting trade, Pakistan has effectively chopped off a leg it was standing on — cutting access to affordable Indian goods that fuel its manufacturing and daily needs. At a time when the country is battling economic stress, closing one of its most accessible trade channels is a self-inflicted wound.

 

Economy on the Edge

Pakistan’s economic condition is already precarious, including red-hot inflation, depleting foreign reserves, and growth forecasts slashed by all key economic institutions across the world. 

The International Monetary Fund (IMF) has slashed the country’s growth forecast to 2.6% for the fiscal year 2025-26, citing rising trade tensions and high U.S. tariffs as major drags on recovery. The World Bank had projected Pakistan’s growth rate for FY26 at 2.7%. Meanwhile, the Asian Development Bank (ADB) maintains its forecast at 2.5% for fiscal year 2025. 

Pakistan, which has $373.08 billion worth of GDP , ranks as the 42nd largest economy in the world, while India's GDP stands at over $3.6 trillion, which is the 5th largest economy in the world. Pakistan heavily relies on international aid and financial support from institutions like the IMF, World Bank, and friendly nations like China. In September 2024, the IMF disbursed a $7 billion loan to Pakistan. And interestingly, Pakistan is one of the fifth largest debtors of the IMF. Since 1958, as per reports, Pakistan has taken loans from the IMF more than 20 times. 
 

By cutting off ties, Pakistan is hurting its own economy more than India’s. Experts estimate the India-Pakistan trade potential at $37 billion, but actual trade is now down to around $2 billion annually.

The Bigger Picture

Pakistan’s aggressive posture might be aimed at domestic political optics or deterring India from further pressure. But it risks creating a situation where it:

• Loses vital trade revenue.
• Faces a potential water crisis.
• Is seen as blocking diplomatic solutions.
• Pushes India closer to allies in the region and globally.

In essence, what started as retaliation could turn into a strategic self-goal—economically, diplomatically, and even militarily. Pakistan’s decision to escalate in response to India’s actions might win it short-term headlines, but the long-term fallout looks grim. With no water leverage, no trade fallback, and mounting internal problems, Islamabad might soon find itself gasping—economically, diplomatically, and politically.

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