How Economic Retaliation Is Strangling Pak Post-Pahalgam Attack

Bharat’s calibrated economic retaliation is a silent siege—bleeding Pakistan’s economy without firing a shot. From airspace shutdowns to water threats, and bond market tremors to trade disruption, New Delhi is weaponising pressure points. The question now is: will Islamabad bend, break, or lash out in desperation?

The tactics of laying siege around a fortress to drain its resources and break the enemy’s will before launching a full-scale assault has been part of military strategy since medieval times. In the modern geopolitical arena, this has evolved into economic blockades, diplomatic isolation, and strategic disruptions aimed at raising the cost of conflict. This very strategy is playing out between Bharat and Pakistan—two nations that have been at war, overt or covert, since 1947.

The latest flashpoint came following the April 22, 2025, terrorist attack in Pahalgam, Kashmir, carried out by Pakistan-sponsored terrorists. In response, New Delhi has opted not only for a military posture but also an economic offensive designed to bleed Pakistan dry, its already fragile economy, before launching any major military action.

While both countries have initiated a series of reciprocal and preemptive actions against each other - the overall economic impact is far more severe for Pakistan, which is already grappling with an economic crisis and sustaining on loans and grants. While Bharat, with its growing economic clout, is better positioned to sustain a prolonged conflict.

Here’s a closer look at Bharat’s retaliatory actions and their economic fallout for Pakistan.

Airspace closures

The closure of airspace was the first economic measure initiated by both countries—thereby denying airspace access to registered, operated, or leased aircraft, including commercial airlines of the respective nations. Though it carries a military angle, the immediate impact is on commercial aviation. According to industry estimates, this action is costing Pakistan around $120,000 per day in lost overflight fees—amounting to $440 million annually.

While Bharat operates nearly 800 flights that typically pass through Pakistani airspace, these now face increased ticket costs of up to 30 per cent and flying time extensions of 30–40 minutes. This translates to an additional cost burden of approximately $591 million over 12 months—well within Bharat’s capacity to absorb.

Suspension of the Indus Waters Treaty

Bharat has suspended the 1960 Indus Waters Treaty, a landmark water-sharing agreement, contingent on Pakistan ending its sponsorship of terrorism in a credible and irreversible manner. This move puts Pakistan’s access to Indus River waters—which are vital for irrigation and hydropower—at risk.

The Indus system supports 90 per cent of Pakistan’s staple crops—wheat, rice, sugarcane, and cotton—feeding 237 million people and sustaining cities like Karachi and Lahore. Agriculture contributes 21 per cent to Pakistan’s GDP and employs 45 per cent of its workforce. Nearly 80 per cent of irrigated farmland depends on the Indus.

Sowing season and crops

During the Kharif season (April–September), crops such as rice, sugarcane, cotton, and maize rely heavily on Indus irrigation during and after the monsoon.

In the Rabi season (October–March), crops like wheat, barley, and pulses depend on stored Indus water. The Indus River system (Indus, Jhelum, Chenab) provides 80 per cent of irrigated water, accounting for 93 per cent of agricultural water use. These crops are vital, contributing 21 per cent to GDP and supporting nearly half the national workforce.

If New Delhi diverts or restricts the Indus flows, the consequences could be devastating. The agriculture sector dependent on the Indus is valued at approximately $15.4 billion annually for 124 million tonnes of essential food items—90 per cent of which are domestically consumed, according to FAO, Pakistan Agricultural Statistics, 2024.

Disruption of this water lifeline would not only collapse Pakistan’s agriculture but could shake the very foundation of the Pakistani federation. Not surprisingly, Pakistan has outrightly rejected the suspension of the treaty, warning that any attempt to stop or divert Indus waters would be considered an “act of war.”

Impact of 4 per cent drop in Pakistan’s bonds

Since the terrorist attack, the Karachi Stock Exchange KSE-100 index has dropped by approximately 7,100 points—or nearly 6 per cent.

Pakistan’s dollar-denominated government bonds fell by more than 4 cents. According to the World Bank’s International Debt Statistics 2025, Pakistan’s outstanding external debt stands at approximately $130 billion, of which $30 billion is in dollar-denominated bonds. A 4 per cent drop in bond value equates to a $1.2 billion reduction in bond market value.

For FY25, Pakistan must repay $26 billion in external debt. Due to the fall in bond prices, refinancing costs could rise by an additional $100 million. These higher borrowing costs will further strain the national budget, diverting funds from development to debt servicing and deepening fiscal vulnerability.

Suspension of trade

Pakistan suspended all trade with Bharat, including direct and third-country trade (e.g., through Dubai-based re-exporters). This includes shutting down the Attari-Wagah land checkpoint, a key trade route. New Delhi responded by suspending trade as well.

The trade suspension further deepens Pakistan’s economic fragility, especially in the import of critical goods like medicines, electricity, and spices from Bharat. This will likely lead to domestic price hikes and aggravate internal unrest as the economy continues to deteriorate.

Small Pakistani traders—such as truck owners, logistics workers, and daily-wage labourers—who relied on trade with Bharat will be severely impacted due to the loss of livelihood opportunities. Historically, it is the below-poverty-line segment and the common man who bear the brunt of such economic disruptions in Pakistan. This stoppage will only worsen the situation. A 10 per cent food price hike could potentially push inflation to 5–10 per cent by mid-2026.

New Delhi’s measures are calculated, long-term, and multidimensional—designed to force Pakistan into a corner without firing a shot. As the economic noose tightens, Islamabad faces a harsh choice: recalibrate its state policy on terrorism or risk internal collapse. Either way, for now, the battlefield is equally fought on the ledger book as it is on the LoC.

Bharat has set the siege, one that will only tighten with time and appropriate measures—the question now is, how long can Pakistan sustain the pressure before either its people revolt against the establishment or Rawalpindi indulges in another military harakiri?

(The author is Founder of My Startup TV)