NextFin News - Pakistan's army chief, Field Marshal Asim Munir, has pressed Iran to use its influence over Yemen's Houthis to halt attacks on Saudi Arabia's energy facilities, a diplomatic push that lays bare Islamabad's precarious position as a US-Iran war widens across the Red Sea and keeps Brent crude anchored above $104 a barrel.
The call, placed Wednesday to Iranian Foreign Minister Abbas Araghchi during his visit to China, is Islamabad's latest bid to broker a negotiated settlement to a conflict that now threatens the shipping lanes its own economy depends on. Pakistani government sources described Araghchi's response as "hopeful," though Tehran has publicly insisted it does not direct Houthi operations.
For investors, the stakes are straightforward and uncomfortably linked: Saudi Arabia's oil exports are under pressure, the inflation risk premium baked into crude is running hot just as the Federal Reserve tightens policy, and Pakistan — a nuclear-armed state of 240 million people leaning on Gulf lifelines — is being drawn deeper into a regional security architecture it may not be able to control. The question is whether back-channel diplomacy can cool a conflict that markets are only beginning to price.
The Diplomatic Squeeze: Pakistan Between Riyadh and Tehran
The immediate trigger is a defense commitment Pakistan cannot easily walk away from. Last September, Riyadh and Islamabad signed a Strategic Mutual Defense Agreement under which an attack on one is treated as an attack on both. Last month, that was layered into a trilateral Mecca pact with Türkiye. When Houthi drones and missiles began striking Saudi oil infrastructure, Islamabad's treaty obligations moved from the filing cabinet to the front page.
Yet the response Munir chose was not a military one. He asked Iran — the regional power widely seen as the Houthis' principal patron — to restrain the group. That choice is revealing. It signals that Pakistan wants to honor its Saudi commitment without firing a shot, and that it still believes Tehran holds leverage over the Houthis even as Iranian officials insist otherwise.
"The army chief discussed the overall regional situation, with special focus on Houthis' attacks and revival of stalled direct talks between the US and Iran," a source familiar with the developments said.
The Foreign Ministry reinforced the ambiguity. Spokesman Sajjad Haider Khan said Islamabad remains committed to "implementing" its defense pacts, but added that "when, how, where and what force will be used against what objectives, in which modes and matters ... operational confidentiality requires us to be discreet at this stage." He framed Pakistan's preferred route as "dialogue and diplomacy and not through coercive measures," while calling the situation in Bab al-Mandeb "exceptionally serious."
That is the language of a country trying to keep every door open. Pakistan has deployed forces to Saudi Arabia since the 1970s — at times more than 10,000 troops — and Pakistani units helped defend the kingdom during the 1990-91 Gulf War. But the current government's instinct is mediation, not mobilization. Islamabad has positioned itself as the main intermediary between Washington and Tehran throughout a war that began on February 28, hosting the highest-level direct talks between the two since they broke diplomatic ties in 1979.
The economic logic is just as compelling as the strategic one. Saudi Arabia has historically been Pakistan's financial backer of last resort, providing balance-of-payments deposits and deferred oil-payment facilities when Islamabad's reserves ran thin. Under Pakistan's current $7 billion IMF program, the country is targeting foreign-exchange reserves of more than $18 billion by June, and Riyadh has separately backstopped the country with a $3 billion injection. A Pakistan that alienates Riyadh risks losing that lifeline. A Pakistan that openly confronts Iran risks inflaming its own restive southwest and handing rivals a sectarian card they have been waiting to play. Mediation is not just preference; it is necessity.
The Transmission Mechanism: How a Phone Call in Islamabad Moves Oil
On the surface, Pakistan is a minor actor in the oil market. It imports crude; it does not export it. But the Red Sea corridor it is trying to protect has become central to global supply, and that is why crude prices are reacting to a phone call from Islamabad.
Saudi Arabia's East-West pipeline, which runs across the peninsula to the Red Sea port of Yanbu, can move up to 7 million barrels per day at full capacity — a deliberate workaround for the Strait of Hormuz, which Iran has effectively closed. Before last week's drone strike, the pipeline was carrying roughly 4 million to 5 million barrels per day, or about 4% to 5% of global supply. Its shutdown forced Riyadh to lean harder on the Red Sea route, and therefore on the Bab el-Mandeb Strait — the narrow passage the Houthis now patrol.
That is the mechanism, and it runs in three steps. First, the pipeline outage pushes Saudi crude onto the Red Sea route. Second, the more Saudi oil transits the Bab el-Mandeb, the more valuable Houthi disruption becomes, and the more leverage Iran gains by holding the group back. Third, Munir's appeal to Tehran is, in market terms, a request to reduce the option value of escalation — to make restraint credible enough that traders stop bidding the risk premium higher.
The numbers show how quickly the premium built. Brent climbed to roughly four-month highs earlier this week on reports that loading at Yanbu had been suspended and some cargo deliveries to European customers cancelled. By early Asian trade on September 18, front-month Brent had eased 1.0% to $104.80 a barrel and WTI was down 1.0% at $101.38, as Saudi Arabia offered additional crude cargoes to Asian refiners through ship-to-ship transfers off Oman's Sohar port and US Energy Secretary Chris Wright signaled a quicker return to service for the pipeline.
But the relief is fragile, and the asymmetry favors the bears only if repairs hold. Industry sources estimate Yanbu's inventories can sustain current exports for only about five to seven days, and traffic through Hormuz has fallen to between 6 million and 9 million barrels per day. If the pipeline's full repair takes the six to eight weeks some sources expect, the Red Sea route is not a temporary detour — it is the main road, and it runs past Houthi positions.
The second-order channel runs through the Federal Reserve. The US central bank has just delivered its first rate increase in three years, lifting the federal funds target to 3.75% to 4.00%, with the median policymaker projection pointing to another 25 basis points by year-end — a view shared by 12 of 18 participants. Elevated energy prices are the last thing Washington wants when inflation remains above the 2% target, and the 10-year Treasury yield has already pushed above 5%. A sustained oil premium does not just tax consumers at the pump; it narrows the Fed's room to support growth, keeps real rates restrictive for longer, and transmits tightening into every dollar-denominated borrower on earth.
For an import-dependent economy like Pakistan's, that transmission is brutal. Higher Brent means a wider current-account deficit, which means more pressure on the rupee, which means either higher domestic rates to defend the currency or a faster draw on reserves to smooth the slide. The $3 billion Saudi backstop buys time; it does not buy immunity from an oil shock that persists. This is why Islamabad has a stronger incentive than almost any capital to see the Red Sea calm down — and why its diplomacy is being watched more closely than its military weight would suggest.
The Counter-Thesis: Iran May Not Be Able to Deliver Restraint
The strongest argument against reading too much into Pakistan's diplomacy is that Tehran may lack the leverage Islamabad assumes. Iranian Foreign Ministry spokesman Esmaeil Baqaei has stated that Tehran does not interfere in Yemeni affairs and described the Houthis as independent actors "pursuing their own interests." If that is true — or even if it is partly true — Munir's phone call is a request to an address that cannot answer it.
The Houthis have their own war aims. Since July they have been engaged in renewed fighting with government forces, declared a maritime blockade on Riyadh, and claimed advances along the Red Sea coast and around the Bab el-Mandeb. A drone was intercepted south of Mecca on Tuesday evening, the second Houthi attempt to target the holy city after a ballistic missile launch in July 2017, prompting swift condemnation across the Muslim world; the Houthis denied targeting Mecca. A group that has fought for more than a decade and now controls Yemen's Red Sea coastline is not a proxy that sits still when its patron asks it to.
There is also a timing problem. Pakistan is mediating a US-Iran settlement, and Araghchi has said Iran is ready to return to negotiations once Washington halts hostilities in the Strait of Hormuz and "abides by the Islamabad memorandum." Houthi escalation is part of Tehran's negotiating leverage. Asking Iran to restrain the Houthis while talks are stalled is asking it to give up a chip before it sees the other side's hand. The US and Iran signed the Islamabad Memorandum of Understanding on June 17 and launched negotiations toward a final agreement, but talks later stalled over security guarantees and freedom of navigation through the Strait of Hormuz.
The falsifying signal is specific: if Houthi attacks on Saudi energy infrastructure continue or intensify over the next two to three weeks — measured by confirmed strikes on oil facilities or shipping incidents in the Red Sea — then Pakistan's diplomatic channel has failed to produce restraint, and the market will have to price a wider, longer disruption rather than a contained flare-up. A single strike that penetrates Saudi air defenses and hits critical export infrastructure would be the clearest such signal.
What to Watch: Scenarios for Oil, Rates, and the Region
Short term (days to weeks): Sentiment drives prices. Every report of a pipeline repair milestone or an extra Saudi cargo offering will knock a dollar or two off Brent, as it did on September 18. Every confirmed Houthi strike will add it back. The range is likely to stay wide, with Brent anchored above $100 as long as the East-West pipeline is impaired. Watch the 10-year Treasury yield — a break back above 5% on oil-driven inflation fears would signal that the rate channel is activating.
Medium term (weeks to months): The repair timeline matters more than the diplomacy. If the pipeline returns to meaningful capacity within the faster-end estimates, the risk premium drains. If repairs stretch toward six to eight weeks and Yanbu inventories draw down, Saudi export volumes tighten and the premium hardens. Watch the ship-to-ship transfer volumes off Sohar and any official pipeline throughput figures. Also watch Pakistan's reserves: a sustained Brent move toward $110 would test the $18 billion target and could force Islamabad to seek additional Gulf support.
Long term (structural): This is where the Pakistan angle could matter most. If Islamabad is pulled into a security role inside Saudi Arabia — troops, air defense, training under the trilateral Mecca pact — the conflict acquires a South Asian dimension that has been largely absent. Pakistan's nuclear-armed status and its rivalry with India mean that any Pakistani military entanglement in the Gulf would draw scrutiny far beyond the oil market. That is the tail risk, not the base case.
The base case is continued mediation: Pakistan keeps talking to Tehran, Tehran keeps talking to the Houthis, and the Houthis keep enough pressure on to preserve their bargaining position without triggering a full Saudi military response. Oil stays elevated but does not spike, because both Riyadh and Washington prefer contained disruption to a war that closes Hormuz for good. Under that path, Brent oscillates in a $100 to $110 band while the market waits for either a pipeline repair or a negotiating breakthrough.
The downside case is a miscalculation — a strike that kills large numbers of civilians or destroys critical export infrastructure, forcing Saudi Arabia to demand action under the defense pact and dragging Pakistan toward a choice it has spent the crisis avoiding. In that scenario, the oil premium is the least of the problems; the real risk is a regional war that no amount of mediation can contain.
Bottom line: Pakistan's appeal to Iran is less a sign of leverage than a sign of constraint — a middle power using the only tool it has because the tools it would rather not use are getting heavier by the day. For the oil market, the real story is not whether Islamabad can mediate, but how long Saudi Arabia can route its exports through a war zone while waiting for a pipeline to heal.
Explore more exclusive insights at nextfin.ai.
