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The Pakistan-Iran trade target of $10 billion has created fresh optimism about economic ties between the two neighbours. However, turning the political commitment into actual commerce will require workable payment systems, sanctions compliance and reliable transport links.
Pakistan and Iran signed a Preferential Trade Agreement in 2006. Under the deal, Pakistan offered concessions on 338 tariff lines, while Iran offered concessions on 309. The concessions covered about 18% of their mutual most-favoured-nation tariffs.
According to State Bank of Pakistan data, bilateral trade stood at $638 million in 2006. Iranian exports accounted for $450 million of that amount.
Iran mainly exported petroleum gas, refined petroleum products, electricity and dried legumes to Pakistan. Pakistan’s exports included rice, meat, fruits, vegetables and textiles.
Trade reached $1.32 billion in 2009. It then entered a prolonged decline.
By 2020, bilateral trade had fallen to $438 million. Formal recorded trade later dropped to zero and has remained there.
US sanctions on Iran created a major obstacle. The lack of viable payment channels made it difficult for banks and businesses to conduct formal transactions.
Pakistan and Iran have tried to overcome the payment problem through barter arrangements.
Since 2023, both countries have operated the Business to Business Barter Trade Mechanism.
Public data on these transactions remains unavailable because of the complexity of barter arrangements. Current barter trade is estimated at around $3 billion.
That figure is more than twice the last recorded level of formal bilateral trade.
Pakistani businesses can trade in 26 approved commodity categories under the mechanism. These include food products such as milk, cream, eggs, cereals and rice.
The approved categories also cover manufactured goods, textiles and metals.
The expansion of barter trade shows that sanctions have not necessarily eliminated economic activity between the two countries.
Instead, they have changed how trade takes place.
Some commerce has moved toward barter arrangements and informal channels. Smuggling has also remained a concern.
Barter, however, cannot replace a modern payment system for large-scale trade.
The system depends on mutual demand for goods of comparable value. For example, Pakistan would need to offer rice or another basket of products to obtain Iranian oil under a balanced barter arrangement.
That differs from conventional international trade.
A country can normally run a surplus with some trading partners and a deficit with others. It can then manage its overall external balance through financial and payment systems.
Barter limits that flexibility.
Recent regional developments could create a new opportunity for Pakistan and Iran.
The region entered a major crisis on February 28, 2026, following US and Israeli attacks on Iran.
Pakistan subsequently emerged as an important mediator and interlocutor in efforts to reduce tensions.
That diplomatic role has also created space for stronger economic engagement.
In April 2026, Pakistan notified six routes for transporting goods to Iran against encashable bank guarantees.
The measure came under the Transit of Goods through Territory of Pakistan Order 2026.
The new arrangements could improve connectivity between the two countries and provide businesses with more predictable routes for moving goods.
Iran can also provide Pakistan with access to Central Asian markets.
At the same time, Pakistan can offer its ports for the re-export of Iranian goods to third countries.
That could become particularly important for Iran as restrictions around the Strait of Hormuz continue to disrupt regional trade.
US sources have estimated that Iran could be losing around $500 million a day because of the naval blockade.
The changing regional environment has therefore created a strong incentive for both countries to improve trade and transport links.
The commitment to increase bilateral trade to $10 billion is politically significant.
The harder task will be turning the target into measurable steps.
If only formal trade is counted, the two countries would need to move from almost zero to $10 billion.
If estimated barter trade is included, the starting point is closer to $3 billion.
Even from that higher base, reaching $10 billion would require major policy changes.
Past experience suggests that trade cannot rise sharply without reliable financial and logistical infrastructure.
Announcing ambitious export targets can generate headlines. They have little practical value without mechanisms that allow companies to make and receive payments.
The first priority should therefore be developing a credible payment system.
Pakistan could seek a US waiver for purchasing petroleum products from Iran.
Several countries, including China, Türkiye and India, have secured arrangements that allow them to purchase Iranian petroleum despite US sanctions.
A similar arrangement could provide Pakistan with access to a potentially cheaper source of diesel and petrol.
However, formalising petroleum imports would also require stronger action against smuggling.
Fuel smuggling across the Pakistan-Iran border has long affected legitimate businesses and government revenue.
Closing illegal routes would help create a level playing field for formal imports.
It could also increase tax collection and improve energy-market transparency.
Another option is a currency swap arrangement between Pakistan and Iran.
A proposal for such a mechanism already exists.
Pakistan could explore operationalising the arrangement through the Asian Clearing Union. A workable local-currency settlement mechanism could reduce dependence on conventional banking channels.
Such a system would not remove sanctions-related risks. It could, however, provide a framework for legitimate transactions if designed to comply with applicable international restrictions.
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Trade between Pakistan and Iran is not limited to goods exchanged directly between the two countries.
Their geographic positions give them the potential to become important transit partners.
Iran can provide Pakistan with routes toward Central Asia.
Pakistan, meanwhile, has ports that could help Iranian exporters reach markets beyond the region.
The new transit arrangements could therefore expand the economic relationship beyond traditional bilateral commerce.
For Pakistan, this could mean greater access to Central Asian markets.
For Iran, Pakistani ports could provide additional options for exporting goods when maritime routes face disruption.
The $10 billion target will ultimately depend on whether both countries can build a system that supports regular commercial transactions.
That means addressing payments, sanctions compliance, banking, customs procedures, border infrastructure and transport connectivity at the same time.
The political commitment has created an opportunity.
The next step is to turn that commitment into a detailed roadmap with annual targets, priority sectors and clearly defined financial and transit mechanisms.
Without those measures, the $10 billion figure could remain an ambitious political statement.
With them, Pakistan and Iran could move beyond barter and informal trade toward a more sustainable economic relationship.
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