Pakistani consumers have experienced oil shocks in recent months and are expected to face further difficulties in the near future, as fears of oil shortages in the country grow amid escalating tensions in the Middle East.
A major portion of Pakistan's oil imports comes from Saudi Arabia. The Strait of Hormuz is already closed, while Pakistan's alternate route through the Red Sea has also been disrupted by Houthi attacks, effectively affecting Saudi Arabia's oil exports.
In August, the Pakistan government had arranged three oil cargoes, but they were stopped by the Yemeni Houthis. However, the Pakistani establishment approached Iran for intervention, and the Houthis later released the cargoes.
The government is currently rerouting oil supplies. With global oil prices rising, pressure is building on the economy and inflation is increasing. Pakistan will be required to spend more dollars on oil in the future. The government is therefore considering diversifying its crude sources away from the Gulf.
Despite the challenges, Pakistan has kept its petroleum supply chain running despite a sharp escalation in the Middle East that has knocked out the main alternative routes the country relied on two months ago. However, officials and industry sources warn that securing cargoes for November will be far harder and costlier.
When the US-Iran truce collapsed on July 8 and Iran closed the Strait of Hormuz again, Pakistan still had a fallback. Crude was moving from Saudi Arabia's Red Sea port of Yanbu, supplied through the kingdom's East-West pipeline, and the cargoes reached Karachi without major disruption.
That buffer has now been badly damaged. This month, drone strikes shut down the East-West pipeline, which carries about 5 million barrels per day. Houthi forces seized a strategic island at the mouth of the Red Sea, while a vessel was struck inside Hormuz.
Petroleum Minister Ali Pervaiz Malik has said Saudi supplies are currently out of reach because of Houthi attacks on the kingdom's oil facilities, and that a Pakistani vessel is being kept on standby. The Petroleum Division, however, stresses that the country is holding stocks for more than 20 days.
The 20-day buffer is above the minimum level required by the Oil and Gas Regulatory Authority (OGRA) for Oil Marketing Companies (OMCs). According to officials, September supplies have been secured and October has been derisked even under adverse scenarios, while planning for November is under way.
Inside the country, prices have risen at the pumps. On July 22, shortly after the government switched from weekly to daily price revisions, petrol was priced at Rs320.73 per litre and high-speed diesel at Rs367.21. By September 20, petrol stood at Rs389.14 and diesel at Rs424.04.
This means petrol and diesel prices rose by Rs68 and Rs57 per litre, respectively, in just two months. The increase in domestic fuel prices comes against the backdrop of an overall rise in global oil prices during the past few months.
Benchmark Brent futures, which had gone up after the US-Israel attack on Iran on February 28, had fallen to around $70 per barrel on July 1, but prices rebounded above $100 by late July and peaked at about $109 in early September. However, they have since eased to around $100.
The physical market, from which Pakistan actually buys its cargoes, is far tighter. According to S&P Global Platts assessments, Dated Brent, the physical benchmark, stood at $125.42 per barrel on September 18. Dubai, the benchmark for most of Pakistan's Gulf-sourced crude, was at $118.40. Industry officials said physical Dubai crossed $126 earlier this month.
Refined products, which Pakistan prices on an import-parity basis against Arab Gulf benchmarks, have moved in the same direction. Gasoline 92 RON was assessed at $132.73 per barrel FOB Arab Gulf on September 18, against about $104 in July, an increase of roughly 28%.
Gasoil 10ppm, the benchmark for Pakistan's diesel, touched a high of around $177 this month, up from about $149 in July, before easing to $169.74 on September 18. Jet fuel was assessed at $161.30, while marine fuel at Fujairah stood at $985 per tonne, about $175 above Singapore, reflecting the premium now attached to Gulf-loaded barrels.
The cost of delivering those barrels to Karachi has risen even faster. Industry officials said freight and war-risk insurance premiums had increased three to four times. Tankers are avoiding Hormuz, taking longer routes and paying higher insurance cover to operate in contested waters. These costs feed directly into the import-parity price that OGRA uses to set domestic fuel prices.
Even so, Pakistani consumers are paying less for diesel than motorists in the United States. The average US retail diesel price reached a record $6.285 per gallon in the week of September 14, according to the US Energy Information Administration. That is equivalent to about Rs461 per litre at the current exchange rate, roughly Rs37 above Pakistan's diesel price.
The diplomatic outlook has also deteriorated. A meeting between Gulf Cooperation Council (GCC) states and Iran, scheduled for September 13, was called off with no new date. It had been expected to discuss temporary Omani and Iranian oversight of Hormuz traffic. Analysts say Pakistan-mediated backchannel talks are now the only active diplomatic track.
Officials said three steps have kept fuel flowing, with the first being the maximisation of local refining. Pakistan has largely stopped importing refined diesel since June, apart from a single cargo in early August. Instead, the government pushed more crude to local refineries to produce diesel domestically.
With Gulf diesel trading about $51 per barrel above crude, refining locally has been far cheaper than importing the finished product. The country's five refineries have a combined capacity of around 450,000 barrels per day and meet roughly 70% of diesel demand and 30% of petrol demand. Domestic crude production stands at about 63,000 to 64,000 barrels per day.
The second step was diversifying crude sources away from the Gulf. The government is considering supplies from Oman and Fujairah and exploring Libya, the United States, West Africa and Kazakhstan. Because Pakistani ports lack the draft to berth very large crude carriers, officials plan to park a US-origin VLCC near Sohar in Oman or off Hub and move its cargo through ship-to-ship transfers.
Cnergyico is the only refinery that can berth a vessel twice the size of those accommodated at other Pakistani ports at its SPM. Refined petrol is being brought in from Singapore and Oman.
Refinery officials said crude cargoes for September and October had already been booked, with more supplies now coming from the US and West Africa and less from the Gulf. They said the longer voyages were not expected to significantly affect refining operational viability.
The officials also said local refineries were holding ample diesel stocks and there was so far no need for refined diesel imports. They added that imports could be avoided through the peak season if OGRA managed the supply side effectively, including product allocation among OMCs and upliftment from refineries.
The third step was direct state intervention. The federal government has cut fuel allocations for official vehicles by 50% for three months and restricted official travel. This came days after it approved Rs75 billion in targeted subsidies to shield low-income motorists.
The Pakistan Navy has escorted energy tankers under Operation Muhafiz-ul-Bahr since March. On Saturday, Deputy Prime Minister Ishaq Dar urged Tehran to ensure uninterrupted energy supplies and safe passage for shipping.
Other import-dependent countries in the region have struggled more. Bangladesh, which imports more than 90% of its petroleum, has had to ration power and temporarily close garment factories. In Sri Lanka, fuel distributors have begun restricting supplies ahead of expected price increases.
Industry, however, warns that the coming months will be tougher and that the pressure point for oil marketing companies is not diesel. OMC officials said their main concern was liquidity. In its latest letter to OGRA, the Oil Companies Advisory Council (OCAC) said about Rs66.7 billion in price differential claims remained outstanding, roughly equal to five petrol cargoes, with much of the amount pending since March.
OCAC also flagged an approved Rs1.22 per litre increase in OMC margins that has yet to be notified. It warned that if liquidity continued to be drained, any resulting supply disruption should not be blamed on the oil industry.
Their second concern is petrol. With local refineries meeting only about 30% of demand, roughly 70% of the country's petrol must still be imported, and the main nearby source, Fujairah, is effectively out of reach. Cargoes from Singapore carry significantly higher freight costs, while Oman's exportable surplus is limited by its own domestic demand. Pakistan consumes about 21,000 tonnes of petrol a day.
OCAC has also cautioned that diesel availability during the October-December harvesting season will depend on how many crude cargoes reach Pakistan in October, and that any shortfall would force expensive imports from the open market.
Industry sources said prices being quoted for November cargoes were significantly higher, while Red Sea detours were adding around 10 days to each voyage.
The minister has himself described the central risk. With all of the country's diesel now coming from refineries running at maximum throughput, a single break in the crude supply chain could cause a diesel shortage. However, he remains optimistic that the alternate arrangements will keep the supply chain uninterrupted.
The post No respite for fuel consumers in Pakistan appeared first on express tribune.