Standoff Renewed: India and Pakistan Edge Closer to the Brink

Tensions between India and Pakistan have entered their most volatile phase in half a decade, as fallout from a deadly terror attack in Kashmir threatens to destabilise an already fragile South Asian security architecture. The April 22 attack in Pahalgam, which killed 26 civilians and was claimed by a Lashkar-e-Taiba proxy group, has set off a cycle of escalation, with India pursuing a broad-spectrum pressure campaign and Pakistan responding with diplomatic disengagement and military signalling.

The standoff has rapidly expanded beyond the Line of Control, drawing in multilateral lenders, regional powers and global institutions, reviving fears of strategic miscalculation between two nuclear-armed neighbours.

India’s Strategy: Maximum Pressure, Multidimensional Approach

New Delhi’s response has been swift and calibrated to inflict strategic, economic, and symbolic costs. In a historic first, India announced the suspension of the Indus Waters Treaty, halting the flow of the Chenab River into Pakistan—an extraordinary move targeting Pakistan’s agriculture-dependent economy.  Trade and visa ties have been severed, airspace over India closed to Pakistani-origin flights, and postal and land routes suspended.

In a parallel economic offensive, India has formally petitioned the IMF, World Bank, and Asian Development Bank to review funding to Pakistan, including a USD 1.3bn IMF climate resilience loan. The move is aimed at tightening financial scrutiny around potential misuse of aid flows, a veiled reference to state-linked terror financing networks.

Internally, India has initiated civilian defence preparedness across 244 districts, launching mock air raid drills, critical infrastructure camouflage exercises, and continuity planning—a scale of mobilisation not seen since the 1971 war. While military activity has remained restrained, India has retaliated proportionately to 12 consecutive nights of ceasefire violations by Pakistan, keeping the LoC hot but below the threshold of full-scale confrontation.

Pakistan Counters with Diplomatic Escalation, Military Posturing

Islamabad has denied complicity in the Pahalgam attack, framing India’s retaliation as a “dangerous provocation.” It has responded by severing all remaining trade and transit ties, banning Indian carriers from its airspace, and downgrading diplomatic relations. The Simla Agreement, a longstanding framework for bilateral engagement, has been suspended—signalling a decisive break with prior norms of conflict management. Under ‘Exercise INDUS’, Pakistan test-fired two ballistic missiles in what officials described as a show of readiness. The military manoeuvres are being interpreted in Delhi as an effort to deter further Indian action while attracting international attention to the dispute.

At the UN, Pakistan managed to secure a closed-door Security Council consultation—the first in years to discuss Kashmir. Although no statement was issued, the symbolism of the meeting has added diplomatic weight to Islamabad’s efforts to internationalise the crisis.

The crisis has drawn cautious but urgent commentary from world capitals. UN Secretary-General António Guterres warned that “a military solution is no solution,” urging both sides to exercise maximum restraint. Malaysia, Iran, and Russia have weighed in, with varying degrees of nuance. Iran’s foreign minister, visiting Islamabad, called for de-escalation and is expected to deliver a similar message in New Delhi this week. Notably, Malaysia’s Prime Minister referred to “Indian-administered Kashmir” in his condolence message to Pakistan—prompting a sharp rebuke from Indian officials, who view any external framing of Kashmir as interference.

While both countries are flexing on multiple fronts, the economic fallout is expected to be disproportionately severe for Pakistan. India’s limited exposure—trade with Pakistan accounts for less than 0.5% of its total exports—acts as a buffer against escalation-driven disruption. Pakistan, however, faces a more precarious outlook. A delay or suspension of IMF disbursements would exacerbate its external financing gap and stall a fragile macroeconomic recovery.

Outlook: Risks Tilted Toward Further Volatility

The India–Pakistan relationship now sits at its most precarious point since the Balakot airstrikes in 2019. Unlike prior flare-ups, India appears determined not to return to the status quo ante. Its use of economic and institutional levers signals a longer-term strategy aimed at altering Pakistan’s cost-benefit calculus around cross-border militancy. Pakistan, meanwhile, is attempting to draw global attention to the dispute, leaning on diplomatic forums and military signalling to widen the aperture. With dialogue frozen, retaliatory cycles underway, and third-party actors now drawn into the diplomatic fray, the risks of miscalculation—whether at the LoC or in multilateral corridors—are rising. For now, we anticipate India to strike in the near term, as the government also faces domestic pressure to retaliate. Whether the next phase involves backchannel stabilisation or further escalation may well depend on how deftly both sides manage external pressures and internal compulsions in the weeks ahead.