From mediation to markets: CPEC 2.0 westward opportunity

Mujtaba Arshad AT a time when regional tensions have long constrained Pakistan’s economic potential, recent diplomatic engagement between the US and Iran with Pakistan playing a facilitating role may open an unexpected pathway toward regional connectivity, trade expansion and strategic economic integration under CPEC Phase II. For decades, Pakistan’s regional economic potential has remained constrained by geopolitical tensions, weak connectivity and limited regional integration. Despite sharing a long border and strong economic complementarities, Pakistan and Iran have historically failed to build robust trade relations. Bilateral trade has only recently approached $5 billion a figure that sits far below actual potential considering the size, proximity and location of both economies. This underperformance is largely the result of structural constraints, including weak transport infrastructure, sanctions-related complications, border inefficiencies and a lack of formal financial mechanisms. Consequently, Pakistan’s trade structure remains heavily dependent on a small number of traditional markets, increasing its vulnerability to external shocks. As CPEC enters Phase II, the focus is gradually shifting from basic infrastructure construction toward industrial cooperation, Special Economic Zones (SEZs) and connectivity-driven growth. However, without a deliberate westward expansion, CPEC risks remaining a limited, vertical north-south corridor. This is where Iran emerges as the critical missing link. Iran’s geographic position gives Pakistan direct overland access to Central Asia, Middle East, Turkey, Russia and onward European markets. Integrating Iran into CPEC’s westward framework would effectively transform the corridor from a bilateral initiative into a multidirectional regional trade network. The real challenge, however, is whether Pakistan can convert this diplomatic opening into measurable economic gains. The most immediate channel lies in reducing the transport