Gulf War Cripples Hundi Networks as Pakistan's Informal Dollar Inflows Plunge

ISLAMABAD: The remittance mechanisms of Pakistan have been the major focus of policies – yet the dollar economy that moves through hundi and hawala systems is no less real and has suffered an equally devastating blow due to the Gulf war.

Statistics showing the sharp decrease in the unrecorded dollar inflow based on sources from the finance and trading sectors indicate that the months of conflict have adversely affected the informal trading channels that the small-scale manufacturers and traders of Pakistan used to rely on. The effect is very real and devastating indeed.

The story of the Pakistan hundi, hawala dollar flows, Gulf war, and decline starts from realizing what was being funded by these alternative finance arrangements. Pakistani manufacturers, producing embroidery, textile products, handicrafts, and other items, exported their products to Gulf markets, in particular Dubai, and were paid via hundi and hawala channels instead of bank transfers.

The reason for that was openly expressed by the sector representatives: tax evasion and off-budget profits. The informal structure of trade was intrinsic.

"We have been preparing embroidery products for many years which we exported to the Dubai market. The market is now closed, and there are no buyers available in the Gulf countries."
Pakistani manufacturer

The direct observations of participants in Pakistan’s currency market about the hundi hawala dollar inflows Gulf war decline are:

"Never died the hundi hawala system; only its strength declined. Now the Gulf war has added to the impossibility of dollar flows through the hundi or hawala."

The important point here from the currency trader's statement is that even though the dollars are brought in illegally into the country, the dollars have come into Pakistan and added to its dollar pool. It is not just a win for the law enforcement officials; it is a real decrease in the number of dollars available.

The Pakistan hundi hawala dollar inflows Gulf war decline also parallels another outflow of dollars, which has been measured using the currency market. The Chairman of Exchange Companies Association of Pakistan, Malik Bostan, gave the most precise estimation:

"During the first 10 months of calendar year 2025, we sold about $4 billion to banks, which fell to $3 billion during the same period this year. These missing dollars were mostly invested in cryptocurrencies."
Malik Bostan, Chairman, Exchange Companies Association of Pakistan

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The year-to-year decrease in sales amounting to $1 billion in dollar sales to banks due to investments in cryptocurrency is an indication of a significant withdrawal from Pakistan's official dollar market. Crypto investors have been selling dollars at Rs292 as compared to Rs280 in the local market rate – the premium arising from the need to obtain dollars as a way of investing in cryptocurrency.

The Pakistan hundi hawala dollar inflows Gulf war decline and crypto outflow phenomenon has led the State Bank of Pakistan to regulate the crypto market – by creating a legal framework where it would be able to integrate the dollar inflow related to this industry.

Regulatory milestones:

• April 2026: The ban on crypto-related banking activities imposed in Pakistan was removed after eight years
  

• Virtual Assets Act 2026: to provide a legal framework for this sector
  

• SBP Circular: allows regulated banks to have accounts for companies registered with Pakistan Virtual Assets Regulatory Authority
  

• Restriction: Banks will not be allowed to trade or invest in digital assets using their capital or funds from customers

The Pakistan hundi hawala dollar inflows Gulf war decline creates a strange situation for Pakistan's external account management. First of all, the decline of informal inflows is good since this is an indication that there is less illegal activity and is some sort of an enforcement achievement. However, these dollars – irrespective of their source – had contributed to the total dollars pool in Pakistan, alleviating the burden on the formal exchange rate.

All of that at the time when the oil import prices from the Gulf war were high and there were also crypto outflows – which puts Pakistan under three kinds of pressure on its dollar pool.

In regards to the third problem mentioned above, the SBP's cryptocurrency regulation system has created a formal channel. Solution to the Gulf war will bring back the informal trading channels that had been used in the first case. The second pressure will require either lower oil prices or a sustained formal remittance channel.