Diplomatic Strains Rise Following Deadly Kashmir Attack
In the wake of a tragic attack on the tourist resort of Pahalgam, which left at least 26 people dead, India and Pakistan have escalated diplomatic tensions, resulting in the suspension of cross-border trade and visa services. India has accused Pakistan of complicity in the April 22 attack, leading New Delhi to halt its participation in the Indus River water-sharing agreement, essential for Pakistan’s water supply. In retaliation, Islamabad has denied these allegations and called for an impartial investigation while also suspending all trade with India.
The bilateral trade between the neighboring countries has already faced significant declines since India revoked Pakistan’s “most favored nation” (MFN) status in 2019 following a deadly suicide bombing. Official trade figures reveal that during 2024, India’s exports to Pakistan were only $447.7 million, while Pakistan’s to India hit a staggering low of $420,000. Despite reduced formal exchanges, experts estimate that informal trade could still be valued at upwards of $10 billion annually, facilitated through third countries like the UAE and Sri Lanka.
The closure of the Wagah-Attari crossing, the lone land trade route, has intensified concerns regarding trade costs and supply chain disruptions, particularly impacting Pakistan’s pharmaceutical sector, which largely imports from India. While both nations attempt to curb informal trading routes, challenges persist, as private traders continue to circumvent regulations with clever rerouting strategies.
Historical context reveals that trade relations between India and Pakistan have ebbed and flowed over decades, heavily influenced by military and political conflicts. As the region grapples with renewed hostilities, the pathway towards restoring economic ties remains fraught with uncertainty. The future of trade, both official and unofficial, hinges on the desires of traders and the evolving geopolitical landscape.
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