India - Pakistan: Trade War and Nuclear War?

The Pahalgam Attack

The Pahalgam attack of April 2025, killing dozens of pilgrims and soldiers, once again forces the world to confront a terrible question:

Will India and Pakistan be locked forever in a cycle of terror, reprisal, and nuclear brinkmanship?

India, under pressure to respond militarily to such provocations, walks a perilous line:

• Retaliate too harshly, and risk escalation.
• Retaliate too little, and face domestic political blowback.

Pakistan, in turn, faces its own paradox:

• Curb terror groups effectively and risk angering powerful domestic factions.
• Let them operate and invite Indian retaliation and global isolation.

Every attack like Pahalgam chips away at whatever thin diplomatic veneer remains. Each one brings both nations closer to a point where neither side can control the escalation ladder.

A Legacy of Division

When the British Raj collapsed in 1947, the violent birth of India and Pakistan marked not merely the creation of two new nations but the sowing of a bitter rivalry that would shape South Asian geopolitics for decades. The hurried and chaotic Partition uprooted over 14 million people, caused over a million deaths, and left deep scars that festered into lasting political animosity.

The first Indo-Pak war broke out within months over the princely state of Jammu and Kashmir, whose Hindu ruler acceded to India even though the population was majority Muslim — a fact Pakistan contests to this day.

The Kashmir conflict thus became the permanent tinderbox between the two neighbors, defining a relationship riddled with wars, proxy conflicts, political mistrust, and an arms race culminating in nuclear weapons.

The Trade That Never Was

Despite common culture, language, and border proximity, economic integration between India and Pakistan has been practically non-existent. In theory, economic logic favors cooperation:

• India is a $3.7 trillion economy, offering market scale.
• Pakistan's geographic location provides India potential access to Afghanistan, Iran, and Central Asia via land routes.
• Conversely, Pakistan could benefit massively from India’s demand for goods, technology, and energy.

However, reality paints a starkly different picture.

Formal trade between India and Pakistan, even during the best years, barely crossed $2-3 billion annually — a tiny fraction compared to what is possible.

• In 2011, both countries agreed to move toward MFN (Most Favored Nation) status for Pakistan.
• India granted MFN status to Pakistan in 1996.
• Pakistan never reciprocated, fearful of opening its industries to Indian competition and facing internal political backlash.

Following the Pulwama terror attack in 2019, India revoked Pakistan's MFN status, imposed 200% tariffs, and diplomatic channels froze.

Even now, much of Indo-Pak trade occurs informally:

• Through Dubai, Singapore, Afghanistan.
• Smuggled across the Wagah border or via LoC barter trades when active.
• Indian pharmaceuticals, textiles, and chemicals unofficially reach Pakistani markets; Pakistani basmati rice, textiles, and surgical instruments find their way to India.

Irony: Despite political tensions, the street-level demand for goods persists — a silent testament to the practical economic interdependence that politicians refuse to acknowledge.

Impact on India and Pakistan - Airspace and Trade Blocked

Impact on Pakistan

Severe economic damage — much heavier than on India. Pakistan would suffer badly because:

• Trade Dependency: Pakistan’s exports are already weak. Cutting even small Indian trade or transit routes worsens its current account deficit.
• Airspace Fees Lost: Pakistan earns millions of dollars annually from airlines overflying its territory. Airspace closures like after Balakot 2019, expect loses over $50 million+ per year in overflight fees alone.
• Fuel and Logistics Costs Spike: Airlines reroute around Pakistan → longer flights, higher fuel costs → higher import/export costs for Pakistan itself too (cargo costs rise).
• Increased Isolation: Without open skies, Pakistan becomes more isolated regionally, making foreign investment even less attractive.
• Inflation Rises: Blocking Indian imports (like chemicals, medicines, textiles) means shortages and higher prices inside Pakistan.
• China Dependency Grows: With India blocked, Pakistan becomes even more dependent on China — risking economic sovereignty.

Impact on India

Moderate inconvenience, but manageable.

• Minimal Direct Trade Loss: India-Pakistan formal trade is already tiny (~$300-600M range). India barely feels it.
• Increased Flight Times: Indian flights to Europe and Central Asia have to reroute with airspace blocks→ adds 30-90 minutes flight time → higher ticket prices, fuel burn.
• Airlines Revenue Hit: Indian carriers (like Air India, IndiGo) bear extra costs — about $50,000–$100,000 daily with airspace closed.
• Symbolic, Not Strategic: Trade block hurts political goodwill but doesn’t hit India's broader economy. India is diversified: trade with the U.S., EU, Middle East, East Asia is far larger.

Example from 2019 (Balakot aftermath):

• Pakistan closed airspace for 5 months after India’s Balakot strikes.
• Pakistan lost ~$55 million in aviation revenue.
• Indian airlines lost $80-90 million in rerouting and fuel costs.
• Global airlines (Emirates, Qatar Airways) also incurred losses.

Who Hurts More?

Pakistan — by far.

• Smaller economy (~$350 billion vs India's $3.7 trillion).
• More fragile currency (Pakistani Rupee collapses faster).
• Less diversified exports and trade routes.
• Heavily dependent on remittances and limited foreign investment, which dries up if instability grows.

Big Picture:

In the short term, Pakistan would face significant economic pain if airspace closures and trade blockades were implemented. The immediate consequences would include loss of aviation revenue from international overflights, a surge in import-related inflation, and a sharp disruption to already fragile trade channels. With limited reserves and a struggling industrial base, such shocks would quickly ripple across the economy, increasing reliance on external aid and deepening structural weaknesses.

Over the long term, the picture becomes even more precarious. Continued isolation would likely lead to a collapse in foreign investment, reduced access to international markets, and mounting political instability fueled by economic discontent. The erosion of credibility with both Western and regional partners could leave Pakistan dangerously dependent on a narrow set of allies, further shrinking its strategic autonomy.

In comparison, India would experience relatively minor short-term economic inconvenience. Airlines would need to reroute flights around Pakistani airspace, resulting in increased operational costs and longer travel times, especially on westbound routes to Europe and the Middle East. However, given India's diversified trade routes and broader economic base, the overall impact would be contained.

Over the long term, the risks for India are more geopolitical than economic. A sustained breakdown in relations with Pakistan would require elevated defense spending, prolonged military alertness along the border, and greater diplomatic engagement to reassure global partners of regional stability. While its economy would remain largely insulated, the burden of leadership in managing escalation would fall disproportionately on India in the eyes of the international community.

The Nuclear Overlay: Deterrence or Disaster?

The nuclearization of South Asia has fundamentally altered the risk calculations between India and Pakistan.

Both nations declared themselves nuclear weapons states in 1998 through a series of tit-for-tat tests. However, their nuclear doctrines differ sharply:

India follows a "No First Use" (NFU) nuclear policy, which means it has pledged never to initiate a nuclear attack. However, if India is ever attacked with nuclear weapons, it promises to respond with massive and overwhelming retaliation designed to inflict unacceptable damage. This doctrine is anchored in the idea of deterrence — preventing an attack by ensuring that any aggression would be met with devastating consequences. India's nuclear posture emphasizes restraint, credibility, and civilian oversight, with a strong focus on maintaining second-strike capability through its emerging nuclear triad (land, air, and sea-based delivery systems).

Pakistan, in contrast, adheres to a strategy known as "Full Spectrum Deterrence", which does not rule out first use of nuclear weapons. Its doctrine reserves the right to use nuclear arms if it believes its territorial integrity or military redlines are being crossed, especially in the face of a conventional attack from India. This approach stems from Pakistan’s relative weakness in conventional military power. To compensate, it has developed tactical nuclear weapons and maintains a more ambiguous, flexible nuclear posture. The goal is to deter both nuclear and conventional threats by keeping its thresholds deliberately unclear — a move that some analysts argue increases the risk of escalation during crises.

Pakistan’s strategy reflects its conventional inferiority — it believes nuclear weapons are essential to balance India's overwhelming conventional military might.

This asymmetry creates instability risks:

• India could misjudge Pakistan’s redlines.
• Pakistan could escalate rapidly in fear of being overwhelmed.
• Tactical nuclear weapons (“battlefield nukes”) introduce ambiguity that raises miscalculation odds.

The 2019 Balakot airstrike episode — where India bombed alleged terror camps inside Pakistan after the Pulwama attack — saw both sides launching air raids across each other's borders for the first time since 1971. The fact that full-scale war was avoided was not due to careful diplomacy — it was largely luck.

The grim reality: South Asia remains the only place on Earth where two nuclear-armed states regularly exchange fire.

India and Pakistan: Nuclear Strategies, Arsenals, and Facts

Nuclear Doctrines:

India’s Nuclear Strategy

• Policy: No First Use (NFU) → India pledges it will not be the first to use nuclear weapons in any conflict.
• Massive Retaliation: → If attacked with nuclear weapons, India promises massive, unacceptable damage in retaliation.
• Credible Minimum Deterrence: → India maintains only as many nuclear weapons as necessary to deter adversaries, not for warfighting.
• Command and Control: → Nuclear Command Authority (NCA) chaired by the Prime Minister; civilian supremacy emphasized.
• Second Strike Capability: → India is investing in nuclear submarines (INS Arihant-class) to ensure survivability even after a first strike.

Notable Evolution: Since around 2017–2019, some analysts believe India has quietly loosened its NFU stance, suggesting that in certain extreme cases (like biological or chemical threats), India might preemptively strike.

Pakistan’s Nuclear Strategy

• Policy: First Use (Implied) → Pakistan has refused to adopt No First Use; instead, it keeps open the option to use nuclear weapons early in a conflict if it feels threatened.
• Full Spectrum Deterrence: → Pakistan aims to deter not just a nuclear attack, but even a conventional Indian invasion by threatening early battlefield nuclear use.
• Tactical Nukes (TNWs): → Pakistan has developed small, low-yield nuclear weapons (like Nasr missiles) intended for battlefield use against Indian forces.
• Command and Control: → National Command Authority (NCA) under civilian-military structure, but real control is heavily military-dominated.
• Escalation Ladder: → Pakistan maintains a deliberate ambiguity — creating uncertainty about when and how it would use nuclear weapons.

Notable Concern: Use of tactical nuclear weapons lowers the nuclear threshold dangerously — increasing risks of rapid uncontrollable escalation.

Nuclear Arsenals (as of early 2025):

As of early 2025, India is estimated to possess approximately 164 nuclear warheads. Its delivery capabilities span across a robust and diversified arsenal, including land-based ballistic missiles like the Agni series (with varying ranges), aircraft such as the Mirage-2000 and the Su-30MKI modified for nuclear delivery, and an evolving sea-based deterrent with nuclear-powered ballistic missile submarines like the INS Arihant. This triad approach strengthens India's second-strike capability, ensuring survivability even if attacked first.

Meanwhile, Pakistan holds an estimated 170 nuclear warheads, slightly more than India numerically. Its delivery systems are focused primarily on land-based missiles, including the Shaheen series (medium-range), Ghaznavi (short-range), and Nasr tactical missiles designed for battlefield use. In addition, Pakistan can deliver nuclear payloads through aircraft like the F-16s and JF-17s and maintains a network of road-mobile launchers to enhance survivability and flexibility under potential threat scenarios.

Despite the close numbers in warheads, India’s broader range of delivery platforms, particularly the operationalization of sea-based assets, gives it a more survivable and diversified deterrent compared to Pakistan’s largely land- and air-based posture.

Key Points:

• Pakistan has slightly more warheads numerically, but India has better delivery diversity (triad: land, air, sea).
• India’s Agni-V missile can strike deep into China, and its upcoming Agni-VI (in development) could have MIRV (multiple warheads per missile) capability.
• Pakistan focuses heavily on shorter-range tactical weapons and rapid deployment capabilities.

Missile Systems of Note:

Both India and Pakistan maintain the ability to launch nuclear weapons from land-based platforms, including ballistic missiles and mobile launchers. Similarly, both countries possess air-launch capabilities, equipping fighter aircraft like India's Mirage-2000s and Pakistan's F-16s to deliver nuclear payloads.

Where the two diverge sharply is in submarine-launched capabilities.
India has successfully operationalized a sea-based nuclear deterrent, deploying nuclear-powered ballistic missile submarines (SSBNs) such as the INS Arihant, equipped with submarine-launched ballistic missiles (SLBMs) like the K-15 and K-4. This solidifies India's nuclear triad — land, air, and sea — making its deterrent more survivable in the event of a first strike.

Pakistan, by contrast, does not yet have an operational submarine-based nuclear force. While Islamabad is actively pursuing the development of a naval nuclear deterrent — reportedly with Chinese technical assistance — it currently lacks SSBNs or SLBM capability. As a result, Pakistan’s nuclear deterrent remains dependent on land and air-based delivery systems, making it potentially more vulnerable in a high-intensity conflict.

Nuclear Triad Status:

Both India and Pakistan maintain the ability to launch nuclear weapons from land-based platforms, including ballistic missiles and mobile launchers. Similarly, both countries possess air-launch capabilities, equipping fighter aircraft like India's Mirage-2000s and Pakistan's F-16s to deliver nuclear payloads.

Where the two diverge sharply is in submarine-launched capabilities. India has successfully operationalized a sea-based nuclear deterrent, deploying nuclear-powered ballistic missile submarines (SSBNs) such as the INS Arihant, equipped with submarine-launched ballistic missiles (SLBMs) like the K-15 and K-4. This solidifies India's nuclear triad — land, air, and sea — making its deterrent more survivable in the event of a first strike.

Pakistan, by contrast, does not yet have an operational submarine-based nuclear force. While Islamabad is actively pursuing the development of a naval nuclear deterrent — reportedly with Chinese technical assistance — it currently lacks SSBNs or SLBM capability. As a result, Pakistan’s nuclear deterrent remains dependent on land and air-based delivery systems, making it potentially more vulnerable in a high-intensity conflict.

India has a true nuclear triad; Pakistan does not yet.

Production of Fissile Material:

India’s fissile material production is primarily structured around its civilian nuclear energy program, with military applications operating in parallel but distinctly. India uses civilian reactors and specialized fast breeder programs to produce plutonium, allowing it to gradually expand its nuclear arsenal while maintaining a degree of transparency with global nuclear frameworks. Its uranium enrichment infrastructure is largely civilian in nature, although select facilities serve strategic defense needs.

Pakistan, on the other hand, maintains a military-first approach to fissile material production. Its enrichment efforts are primarily military-focused, with limited civilian crossover. Most of its plutonium comes from dedicated military reactors, especially those built with strategic intent at facilities like Khushab. Despite differences in infrastructure and transparency, both countries are estimated to possess enough fissile material to build approximately 200 to 250 additional nuclear warheads if they chose to scale up their arsenals.

Stability Risks in 2025:

• Pakistan’s Tactical Nukes: Lower threshold = higher chance of battlefield nuclear exchange if conventional war starts.
• India’s Evolving Doctrine: Some ambiguity about whether India would preemptively strike if it feared Pakistan readying nukes.
• Command and Control Pressures: Pakistan’s faster launch posture (fear of losing nukes to Indian strike) could cause rushed decisions.
• Global Risk: South Asia remains the most likely nuclear flashpoint in the world today — ahead of North Korea, Taiwan Strait, or Middle East.

Trade or Tragedy: The Choice Ahead

The global environment is changing.

• China’s Belt and Road Initiative now runs through Pakistan (CPEC).
• India is emerging as a key partner for Western nations seeking to counter China.
• The global economy is fragmenting into regional blocs.

In this new era, Pakistan faces economic collapse unless it diversifies beyond security dependency. India faces mounting challenges from China on the eastern front, making a western front (Pakistan) distraction dangerous.

Both nations must confront this reality: Permanent hostility is unsustainable.

Economic integration — however imperfect — could be the ultimate stabilizer:

• Trade normalizes relationships.
• Economic dependencies raise the cost of war.
• Shared prosperity diminishes incentives for violence.

Without it, they remain trapped: Nuclearized neighbors with no backchannel, no trust, and no margin for error.

Nuclear War or Trade War?

Pahalgam is a brutal reminder that old wounds fester when not addressed. But Pahalgam can also be a catalyst — a final warning to both governments.

The future holds two stark possibilities:

• Nuclear War: A catastrophic miscalculation ending in the first nuclear exchange since 1945.
• Trade War: Painful negotiations, tariff battles, and slow normalization — but survival.

The path to war is paved with pride and pain. The path to trade is paved with pragmatism and patience.

The choice lies with New Delhi and Islamabad — but the consequences will echo across the world.