From scrap to speculation: Iran’s rial finds unlikely surge in Pakistan

By Akhtar Pathan

KARACHI, Pakistan (MNTV) — What was once traded at throwaway prices in Pakistan’s exchange markets has turned into a speculative magnet.

The Iranian rial, long one of the world’s weakest currencies, is now at the center of a sudden buying rush, driven less by fundamentals and more by war, informal trade networks and growing expectations that U.S.-Iran tensions may ease.

What began as a marginal, largely ignored currency trade has, in recent weeks, transformed into a high-stakes bet — one fueled as much by geopolitics as by profit-seeking instincts.

Before the outbreak of war on Feb. 28, the Iranian rial barely registered in Pakistan’s currency markets. Dealers recall that 10 million rials — the standard bulk unit used due to the currency’s low value — could be purchased for as little as 2,000 to 2,500 Pakistani rupees. Today, that same amount is being quoted as high as 10,000 rupees in Karachi and around 8,000 rupees in Lahore, marking a roughly fourfold increase.

The surge reflects a sharp spike in demand rather than any fundamental strengthening of the rial in global markets.

“Right now, the spike in rial’s trade is being driven by traders, who are buying because trade volumes have increased, and by investors, who are entering the market hoping to make large gains if the rial strengthens further,” said Zafar Paracha, secretary-general of the Exchange Companies Association of Pakistan.

Paracha described the shift as dramatic. “The rial used to be available at throwaway prices. Now demand has surged during the war, and people are actively seeking it out,” he said.

Trade, war and psychology

At the heart of the surge lies a complex interplay of war-driven trade patterns and shifting market psychology.

Veteran economic journalist Shahid Iqbal said the rial’s rise against the Pakistani rupee is less about currency fundamentals and more about sentiment and necessity.

“This is largely speculative buying,” Iqbal said. “But it is also tied to increased trade activity and a belief that Iran is economically more resilient than previously thought.”

Despite ongoing conflict and longstanding sanctions, Iran’s economy has shown signs of unexpected endurance. Reports of increased oil exports — estimated by some analysts at up to 30% higher during the conflict — have contributed to a perception that Tehran could emerge from the war in a stronger position than anticipated.

That perception has seeped into Pakistan’s informal markets.

“The war has changed how people view the rial,” Iqbal said. “There is a belief that once the conflict ends, the currency could rebound significantly.”

Trade between Pakistan and Iran has quietly expanded in recent years, though much of it remains undocumented. Estimates suggest bilateral trade currently stands near $3 billion, with Iran exporting approximately $2.4 billion worth of goods to Pakistan between March 2024 and March 2025, while importing around $706 million.

Iran has also signaled interest in increasing trade in food and essential goods, potentially pushing volumes even higher.

Informal economy drives demand

Yet the real engine behind the rial’s surge lies beyond official trade figures — in the sprawling, largely unregulated economy that spans the 909-kilometer Pakistan-Iran border.

From fuel and petroleum products to snacks, crockery and household goods, a steady stream of Iranian products flows into Pakistan through informal channels. Much of this trade operates outside conventional banking systems, relying instead on cash settlements — often in Iranian rial.

“Pakistani traders need rial to pay for goods coming from Iran,” Paracha said. “That alone is driving significant demand.”

Fuel, in particular, has emerged as a key factor. Industry sources say Iranian diesel and petroleum products are increasingly available in provinces such as Balochistan, Sindh and Punjab, often at competitive prices.

Some reports suggest Iran has encouraged payments in its own currency for such transactions, though this remains difficult to independently verify.

Iqbal said the result is a localized price surge that does not reflect global exchange rates.

“What we are seeing is not a global recovery of the rial,” he said. “It is a local phenomenon driven by demand in Pakistan’s border economy.”

In practical terms, that means the rial can remain weak internationally — trading at around 1.5 million to the U.S. dollar — while commanding a premium in Pakistani markets where physical cash demand has spiked.

Government policy adds to momentum

Policy decisions in Islamabad have also played a role in accelerating the trend.

On March 24, Pakistan’s commerce ministry approved a temporary exemption allowing certain exports to Iran to bypass standard financial-instrument requirements. The measure, set to remain in effect until June 21, was designed to facilitate trade in the absence of reliable banking channels.

The exemption also applies to rice exports to Central Asia routed through Iran’s land corridors.

Experts say the move has further boosted demand for rial, as traders adjust to settlement mechanisms that rely more heavily on cash transactions.

“It’s a practical solution to a structural problem,” said one trade analyst. “But it also increases reliance on currencies like the rial in informal markets.”

Echoes of past currency booms

For many Pakistani investors, the current rush evokes memories of earlier speculative waves tied to geopolitical upheaval.

Paracha pointed to past surges in interest surrounding currencies such as the Iraqi dinar and Afghan afghani during periods of conflict involving the United States.

“This time, however, speculation is even stronger,” he said. “There is a sense that peace talks between Iran and the U.S. could lead to a lasting resolution, and that is feeding optimism.”

Recent diplomatic signals have reinforced those expectations. The first round of in-person talks between Washington and Tehran — unprecedented in recent years — has raised hopes of de-escalation, with a second round of negotiations widely anticipated.

Global markets have responded accordingly. Investor sentiment has improved, with risk assets rising on expectations that the conflict could wind down in the coming weeks.

That optimism has spilled into Pakistan’s currency markets, where even small investors are placing bets on the rial’s future.

“Some people are buying simply because they think the price will go higher,” Paracha said.

A currency still in crisis

Despite the surge in Pakistan, the Iranian rial remains one of the weakest currencies in the world.

Years of sanctions, inflation and economic isolation have eroded its value. Earlier this year, the currency hit a record low, reflecting deep structural challenges within Iran’s economy.

Open-market rates in Iran continue to show the rial trading at extremely high levels against major currencies, underscoring its ongoing fragility.

The contrast highlights the unusual nature of the current rally in Pakistan.

“The rial can be weak globally and strong locally at the same time,” Iqbal said. “That’s what happens when you have sanctions, broken banking systems and heavy reliance on informal trade networks.”

In Pakistan, the currency is rarely discussed in standard units. Instead, dealers trade in blocks of millions — a reflection of years of inflation and devaluation that have rendered smaller denominations impractical.

Even Iran’s own markets often quote prices in toman, a unit equal to 10 rials, further illustrating the currency’s complexity.

Betting on peace — or risking loss

For now, the rial’s trajectory in Pakistan appears tied less to economic fundamentals and more to geopolitical developments.

If negotiations between Iran and the United States lead to a sustained ceasefire or broader agreement, demand for the currency could remain strong — or even increase further.

But the risks are equally significant.

“If the situation deteriorates or talks collapse, the speculative element could unwind quickly,” experts warn.

That leaves many investors navigating uncertain terrain, where profits depend on events far beyond the control of local markets.

Still, for traders in Karachi and beyond, the allure of potential gains continues to outweigh the risks.

In a market shaped by war, sanctions and shifting alliances, the Iranian rial — once ignored — has become a symbol of both opportunity and uncertainty.

And for now, Pakistan’s unexpected gold rush shows no sign of slowing.