South Asia is a water stressed region where population is mainly associated with agriculture sector. Pakistan and India who share Indus River Basin signed Indus Water Treaty in 1960. The treaty apportioned the rivers on geographical lines. The catchments of these rivers are located in Indian controlled Kashmir. The treaty sustained wars and crisis situations because India had not achieved capability to manipulate water resources. The dispute has resurfaced after India has started constructing large poundage facilities on Pakistani rivers. Water dispute is directly linked to the territorial dispute on Jammu and Kashmir. The nuclear capabilities of the two countries are a stabilizing factor but at the same time continued arms race, low flight times, absence of sufficient NTRMs, and inclusion of tactical and sub-critical weapons into nuclear arsenal are destabilizing features of the existing deterrence stability. The emerging water crisis between the two nuclear neighbors can transform into an armed conflict which can potentially jeopardize the strategic stability in the region.