Although terrorism has been widely studied for its impact and potential determinants in Pakistan, the answer to the policy question regarding the role of external factors in influencing specifically the sectarian terrorism is not empirically well researched. The study, particularly, analyses the role of Pakistan’s regional foreign policy towards neighbouring India, Afghan wars, and the relations with bi-polar fundamental Muslim Block, the Kingdom of Saudi Arabia (KSA) and Iran, on sectarian (religious) terrorist incidents for the period 1973–2017. The findings suggest that economic cooperation with India which drive peace-making relations increases the sectarian terrorism. Both the bilateral loans disbursed by the KSA and trade relations with Iran, significantly increase the chances of sectarian terrorism in Pakistan by activating extremist (proxy) groups. However, the Afghan Wars that call for Pak-US strategic partnership helps Pakistan to control the religious terrorism.