19 Aug Pakistan’s Strategic Dilemma: US-Iran Conflict and Houthi Escalation
Islamabad now stands at the crossroads of two of the most dangerous fault lines in contemporary geopolitics. Since late February 2026, following American and Israeli strikes on Iran that triggered a war, Pakistan has alternated between being the roles of peacemaker and reluctant frontline ally. The delicate ceasefire arrangements, such as the April 8 truce, the historic Islamabad talks bringing a US Vice President and Iranian officials together for the first time since 1979, and the June 17 memorandum signed under Prime Minister Shehbaz Sharif, have now fallen apart for the third time. Mid-July saw Iranian attacks on tankers passing through the Strait of Hormuz triggering renewed US strikes on Iran, which rapidly escalated into a second front: Houthi missiles and drones targeted Saudi oil tankers in the Red Sea, Riyadh’s defenses intercepted ballistic missiles from Yemen, and the Houthis declared a maritime blockade targeting Saudi Arabia, threatening to shut the Bab el-Mandeb Strait, while the Strait of Hormuz remains largely closed to commercial traffic.
Pakistan faces a difficult dilemma: maintaining a security agreement with Saudi Arabia via the SMDA conflicts with the need to avoid hostility toward Iran, its neighbour with which it shares a 900-kilometre border along Balochistan. Islamabad cannot appear to join a war against Tehran, nor can it abandon the defence treaty it signed, which it has publicly supported, deployed troops under, and backed with its nuclear umbrella. Caught between these pressures, Pakistan’s economic stability, sectarian harmony, and diplomatic relations are now dependent on choices made in Washington, Riyadh, and Tehran, developments that Pakistan can influence but not control.
Pakistan’s foreign policy space is more limited than ever, mainly due to its domestic vulnerabilities. The country is constrained by an IMF program with tight conditions that constrain fiscal flexibility, especially as the IMF’s April 2026 regional outlook highlights the Middle East conflict as a driver of inflation and disrupted trade flows extending beyond the conflict zone. Oil prices above $100 a barrel, the highest level since May, are directly affecting Pakistan’s economy, which relies heavily on energy imports, risking a widening current account deficit and reigniting currency pressures that recent governments have only just stabilised. Remittances from Pakistani workers in the Gulf, a key component of external income, are also vulnerable: a prolonged regional war reduces Gulf demand for construction and services at a time when Islamabad can least afford a drop in remittances.
At the same time, Pakistan faces longstanding sectarian sensitivities at home. Given Pakistan’s significant Shia population, any perception that the state is involved in a Saudi-led or American-led campaign against Iran risks causing domestic sectarian tensions, an issue no government wants to deal with during an economic crisis. These pressures are intensified by competing pressures from Washington and Tehran: Washington relies on Islamabad’s unique credibility with Tehran to urge de-escalation, while expecting Pakistan’s defence forces, whose army chief has helped negotiate ceasefires, to remain a stabilising, pro-Western influence in the region. Meanwhile, Iran has signalled through diplomatic channels that Pakistani military involvement against it, whether directly or via Saudi Arabia, would be seen as a serious escalation. Therefore, Islamabad is caught between its economic reliance on the Gulf, its diplomatic credibility with Tehran, and a key relationship with Washington that it cannot afford to jeopardise.
On September 17, 2025, in Riyadh, Shehbaz Sharif and Crown Prince Mohammed bin Salman signed the SMDA, formalizing decades of informal Pakistani–Saudi defense cooperation into a collective-security agreement: an attack on one is an attack on both. Pakistani officials went beyond the treaty’s language, with Defence Minister Khawaja Asif publicly stating that Saudi Arabia would come under Pakistan’s nuclear umbrella. While this move aims to deter aggression, it also narrows Islamabad’s strategic ambiguity. The agreement reportedly allows for the deployment of up to 80,000 Pakistani troops in Saudi Arabia; so far, Pakistan has already sent about 8,000 personnel, a JF-17 fighter squadron, HQ-9 air defense systems, and support aircraft to King Abdulaziz Air Base in Saudi Arabia’s Eastern Province. Both governments have characterised the arrangement as a means of strengthening joint defence cooperation.
Initially, Saudi Arabia and Pakistan viewed the arrangement as a way to diversify their security options: Saudi Arabia sought to hedge against an increasingly uncertain Washington, while Pakistan sought to leverage longstanding goodwill and economic ties for strategic advantage. However, unforeseen events have shifted the context: a war where Iran-backed Houthi forces target the very country Pakistan is treaty-bound to defend. Formal alliances during active crises can transform deterrence from an abstract commitment into a tangible liability. Each Houthi attack on Saudi shipping increases pressure on Riyadh to seek clear Pakistani support, whether through naval aid, more troops, or air-defense cooperation against threats from Yemen. This puts Islamabad in a dilemma: honour treaty commitments or remain strategically neutral. Pakistani officials emphasise their forces are defensive, focusing on base security and air defense rather than offensive actions in Yemen or Iran. This diplomatic stance is Pakistan’s final safeguard, but it remains vulnerable.
Pakistan’s role as mediator is arguably its most valuable strategic asset in the crisis, yet it remains highly fragile. Tehran’s ambassador in Islamabad stated that Iran will conduct talks only in Pakistan because it trusts Pakistan, a relationship of trust developed over months of shuttle diplomacy by Sharif and, more significantly, by army chief Field Marshal Asim Munir, whose direct calls to US officials helped salvage the April 8 ceasefire at the last moment. This trust is based on a perception of Pakistani neutrality, which a single misstep could rupture. If Pakistani forces in Saudi Arabia support operations against Houthi targets, seen by Tehran as proxies, Iran could see Islamabad as a party to the conflict. Consequently, the established channel for US-Iranian talks, the only one since 1979, could close permanently.
This underscores why Islamabad’s ongoing diplomatic efforts are crucial now. Sharif’s recent warnings to Iranian President Masoud Pezeshkian about the potential loss of hard-won peace, along with Foreign Minister Ishaq Dar’s outreach to Saudi Arabia’s Prince Faisal bin Farhan, aim to keep both diplomatic channels open. However, mediators cannot negotiate effectively while serving as part of a military alliance that actively opposes one of the parties involved. Pakistan’s value to both Washington and Tehran hinges on its ability to credibly show that its SMDA commitments have clear limits.
This crisis reveals a broader lesson: a non-state actor with limited capabilities, just a few anti-ship missiles, armed drones, and a willingness to face economic and military retaliation, can disrupt global energy markets, influence a nuclear-armed nation’s alliance decisions, and force a G20 member like Saudi Arabia to rethink its regional security. The Houthis lack the navy, air force, and industrial capacity of a traditional military power. Still, its threat to block the Bab el-Mandeb Strait, combined with Iran’s effective closure of the Strait of Hormuz, has created a dual-chokepoint crisis: with both crucial waterways constrained, Saudi Arabia must divert crude exports via Yanbu, insurers are cancelling coverage for ships in contested waters, and oil prices have jumped past $100. This asymmetric leverage is difficult for traditional deterrence theories to quantify and has nevertheless entangled Pakistan, a country with no direct conflict with the Houthis, into a conflict it did not choose and cannot easily leave. Islamabad now faces the reality that its treaty commitments can be triggered not by an adversary state but by a militia’s missile launch.
Pakistan’s most prudent approach in the coming weeks hinges on three disciplined commitments. First, Islamabad needs to clearly and publicly limit its SMDA-related deployment to a defensive, non-offensive stance, explicitly stating it will not participate in any strikes on Yemen or Iran and conveying this boundary transparently to Riyadh and Tehran, avoiding mere inference. Second, Pakistan should intensify multilateral diplomacy by engaging with China, Turkey, Egypt, and Qatar as co-guarantors of any renewed ceasefire, thereby sharing the diplomatic burden and reducing the risks Islamabad would face if negotiations fail. Third, the government must avoid over-reliance on Gulf assistance as a substitute for IMF-led reforms, given Pakistan’s vulnerability to Gulf oil price fluctuations and remittance shocks.
Pakistan’s ability to navigate this multi-front crisis hinges on its capacity to balance these two commitments with discipline. It needs to honour the Saudi defence pact without becoming complicit against Iran. Upholding strict operational neutrality, ongoing mediation, and clearly setting boundaries for the SMDA are not signs of hesitation but the most practical means for Islamabad to protect its economy, sectarian harmony, and the diplomatic credibility it has diligently developed over the last year.
Reference
This article draws upon the PIPS Talks podcast titled “Pakistan’s Biggest Foreign Policy Test: Balancing Saudi Arabia, Iran & U.S.