On April 22, 2025, a deadly terrorist attack in Pahalgam, Jammu and Kashmir, claimed 26 lives mostly tourists and plunged India-Pakistan relations into a fresh crisis. The attack, carried out by The Resistance Front (TRF), a proxy of Pakistan-based Lashkar-e-Taiba, prompted immediate and severe retaliatory measures from India. The Indian government responded by closing the Integrated Check Post (ICP) at Attari, the only active land trade route between the two countries bringing cross-border commerce to a standstill.

In retaliation, Pakistan suspended all trade with India, including indirect trade via third countries such as the UAE. This standoff has now escalated into a full-blown diplomatic and economic confrontation, with both sides suffering consequences particularly small traders and regional economies that relied on this trade route.


Since its inauguration in 2012, the Attari ICP has served as a critical commercial and cultural conduit between India and Pakistan. In FY 2023-24 alone, the route saw trade worth ₹3,886.53 crore (approx. $465 million), along with 6,871 cargo movements and over 71,000 passenger crossings. India exported products like poultry feed, soybeans, yarn, vegetables, and red chillies, while imports from Pakistan included rock salt, dry fruits, cement, gypsum, and herbs.

However, bilateral trade has been in decline since India imposed a 200% duty on Pakistani goods after the 2019 Pulwama attack. Trade volumes fell from ₹4,370 crore in 2018-19 to ₹2,257 crore in 2022-23. Despite its limited size about $2 billion annually the trade represents a fraction of the $37 billion potential estimated by the World Bank, now further out of reach.

On April 23, India formally shut down the Attari ICP, allowing only returnees with valid permits until May 1. The closure followed a high-level security meeting chaired by Prime Minister Narendra Modi. Foreign Secretary Vikram Misri announced the decision as part of a broader five-point strategy targeting Pakistan, which includes suspending the Indus Waters Treaty, revoking SAARC visa privileges for Pakistanis, and expelling Pakistani defence advisors.

Preliminary investigations into the Pahalgam attack suggest the involvement of three Pakistani nationals among five terrorists, giving India further grounds for its aggressive stance. The move is expected to severely impact Punjab’s economy and disrupt Afghan goods entering India via Pakistan.

On April 24, Pakistan responded by halting all trade with India—including third-party routed transactions. It also closed the Wagah border, cut diplomatic staff, and hinted at walking away from key agreements, including the Simla Accord. Islamabad called India’s actions “an act of war,” particularly citing the suspension of the Indus Waters Treaty.

With its economy already under pressure and reliant on IMF bailouts, Pakistan’s retaliatory moves may further isolate it globally. Reports indicate that Pakistan’s stock market dropped 2,000 points following India’s actions, highlighting the economic fallout.

The breakdown of trade relations marks a new low in India-Pakistan ties, with the Attari-Wagah route—a symbol of limited cooperation—now closed. Daily ceremonies at the border have also been scaled back, signaling the severity of the crisis.

India’s hardline response underlines its commitment to countering cross-border terrorism, while Pakistan’s response appears aimed at salvaging national pride amidst a weakening economy. Both nations now face internal economic strains, and the promise of boosting regional trade remains elusive.

Diplomatically, the mutual expulsion of diplomats, visa restrictions, and threats to long-standing agreements like the Indus Waters Treaty and Simla Accord point to worsening relations. While countries like France and Canada condemned the attack, Pakistan’s denial and claims of a “false flag operation” complicate the global narrative.

The Pahalgam attack has not only taken innocent lives but also derailed a fragile trade relationship between two nuclear-armed neighbours. The $2 billion trade channel, already under stress, now lies in ruins—despite its far larger economic potential. As security operations continue and diplomatic ties fray, the path to de-escalation looks narrow, leaving both nations to bear the brunt of a confrontation with no clear winner.