The ‘liberal peace’ model emphasizes the importance of commercial ties and shared norms for peaceful inter-state relations. In view of that, economic diplomacy promotes cross-border economic activities not only for direct economic gains but also for the indirect benefits of stable political relations. Ever since the creation of India and Pakistan in 1947, political relations between the two states have been tense and have witnessed six military confrontations. The enduring rivalry has undoubtedly limited contacts between the two countries. The political elites have only intermittently supported direct diplomatic engagement, and there are severe restrictions on trade and travel between the countries for ordinary citizens. Furthermore, India is generally seen as a successful democracy in a developing country, while Pakistan has been an autocracy for large parts of its history. India-Pakistan can therefore be considered as a worst-case scenario for the liberal peace model, with continued high levels of hostility likely.This article argues that economic diplomacy continues to matter, because it has increasingly involved India and Pakistan with the world community. It provides evidence suggesting that these indirect links can be seen to have functioned as (partial) substitutes for direct ties. Furthermore, the article analyses the relevance of indirect ties for diplomatic efforts to address three conflict issues: the Kashmir conflict; the Indus water basin; and the nuclear programmes.