India-Pakistan Conflict Escalates: Military Strikes and Economic Tensions Over IMF Loan

India and Pakistan are in a heightened standoff, with India launching 'Operation Sindoor' on May 7, targeting alleged terrorist sites in Pakistan and Pakistan-administered Kashmir. Pakistan condemned the strikes as an 'act of war.' Concurrently, India is attempting to block a $7 billion IMF loan to Pakistan, citing concerns over terrorism financing. The conflict follows a deadly attack in Pahalgam, Indian-administered Kashmir, blamed on a Pakistan-based group. Both nations' nuclear capabilities deter full-scale war, but tensions remain high, with economic and diplomatic pressures adding to the volatility.

A History of Conflict and Nuclear Deterrence

India and Pakistan have fought four wars since their partition in 1947, three of which were over the disputed region of Kashmir. The most recent full-scale conflict occurred in 1999 during the Kargil War. Since both countries became declared nuclear powers in 1998, the threat of mutually assured destruction has served as a powerful deterrent against large-scale warfare.

According to the Federation of American Scientists, India possesses approximately 180 nuclear warheads, while Pakistan holds around 170. Both nations have developed a range of delivery systems, including short-, medium-, and long-range ballistic missiles. India’s nuclear doctrine is based on a “no first use” policy, while Pakistan has not adopted such a stance, instead maintaining tactical nuclear weapons as a deterrent against conventional military incursions.

Security analyst Syed Mohammed Ali noted that both countries have “deliberately developed” their arsenals to ensure mutual destruction in the event of a nuclear exchange. This strategic balance has prevented escalation into full-scale war, even during severe crises such as the 2019 Pulwama-Balakot episode and the current standoff.

Operation Sindoor and the Pahalgam Attack

The latest escalation began after a deadly attack on April 22 in Pahalgam, Indian-administered Kashmir, where gunmen killed at least 26 tourists. India blamed the attack on a Pakistan-based militant group, which it claims operates with the support of the Pakistani military. Pakistan has denied any involvement.

In response, India launched “Operation Sindoor” on May 7, targeting nine sites in Pakistan and Pakistan-administered Kashmir. According to Indian military officials, the strikes were “focused, measured and non-escalatory,” aimed solely at “terrorist infrastructure.” Indian Colonel Sofia Qureishi stated that the operation was designed to avoid civilian casualties and damage to non-military facilities.

However, Pakistan reported that 31 people were killed, including civilians, and described the strikes as a violation of its sovereignty. One of the targets was reportedly a hydropower dam, which raised further tensions, especially after India’s recent suspension of the Indus Waters Treaty—a decades-old agreement governing water sharing between the two countries.

Pakistan’s Response and the Risk of Escalation

Pakistan’s Defence Minister Khawaja Asif stated that the country is “trying to avoid” a full-fledged war but warned that any further aggression would be met with “full force across the complete spectrum of national power.” This language, interpreted by some analysts as a veiled nuclear threat, underscores the volatility of the current situation.

Pakistan’s military is already stretched thin, dealing with insurgencies in Baluchistan and along the Afghan border. Nonetheless, the government faces domestic pressure to respond to India’s strikes, especially given the scale and depth of the attacks—some of which reached as far as 30 miles from Lahore, a major urban center.

India’s Diplomatic Offensive at the IMF

While military tensions dominate headlines, India is also waging a parallel campaign on the economic front. On May 9, the IMF’s executive board is scheduled to review Pakistan’s eligibility for the next tranche of a $7 billion loan under the Extended Fund Facility. India has formally requested that the IMF reconsider the disbursement, arguing that Pakistan diverts international financial aid to support its military and militant proxies.

Indian Foreign Secretary Vikram Misri stated, “Pakistan has pursued cross-border terrorism against India for decades,” and urged the international community to “see clearly” before extending financial support. India’s executive director at the IMF is expected to present this position during the board meeting.

The timing of India’s diplomatic push—just days after Operation Sindoor—has added weight to its argument. Indian officials have also hinted at lobbying other potential aid donors to reconsider their support for Pakistan.

Economic and Strategic Implications

Pakistan is currently facing a severe economic crisis, with dwindling foreign reserves, high inflation, and a growing fiscal deficit. The IMF loan is seen as critical to stabilizing the country’s economy and funding essential public services. A delay or denial of the loan could exacerbate Pakistan’s financial instability.

India, meanwhile, has taken additional steps to isolate Pakistan economically and culturally. It has severed trade ties, blocked Pakistani artists and athletes from Indian platforms, and withdrawn from the Indus Waters Treaty. These measures, while non-military, are part of a broader strategy to pressure Islamabad on multiple fronts.

The Role of Nuclear Deterrence

Despite the heightened tensions, both countries have so far avoided direct military confrontation involving their armed forces. Analysts attribute this restraint to the presence of nuclear weapons, which act as a powerful deterrent against escalation.

However, the secrecy surrounding both nations’ nuclear doctrines—particularly Pakistan’s lack of a no-first-use policy—adds a layer of unpredictability. The risk of miscalculation remains high, especially in the context of cross-border strikes and retaliatory rhetoric.

According to the Center for Strategic and International Studies, India’s nuclear deterrent is primarily aimed at Pakistan and China, and includes mobile land-based missiles and submarine-launched systems. Pakistan, with Chinese assistance, has developed a range of mobile short- and medium-range missiles capable of targeting Indian cities and military installations.

International Reactions

The international community has expressed concern over the escalating conflict. U.S. Secretary of State Marco Rubio stated that he was “monitoring the situation closely,” while President Donald Trump called the attacks “a shame” and expressed hope for a quick resolution.

Iran’s Foreign Ministry also issued a statement urging both countries to de-escalate and return to dialogue. Meanwhile, credit rating agencies such as S&P Global have warned that continued hostilities could negatively impact the sovereign credit ratings of both India and Pakistan.

References

• What are India and Pakistan’s military and nuclear capabilities?
• Tensions escalate as Pakistan calls India's operation 'an act of war'
• India to put forward position on Pakistan's loans at next IMF board meet
• "Those bailing out Pakistan should see clearly", says Foreign Secretary as India prepares to present case at IMF board meeting
• India-Pakistan face-off: Nuclear expert draws up likely scenarios as war clouds gather
• India-Pakistan Tensions May Impact Credit Ratings, Warns S&P Global
• India and Pakistan don’t fight wars like other countries. Here’s why