Every rupee depreciation now carries an immediate and measurable cost: millions added overnight to Pakistan’s oil import bill. In recent weeks, that abstract vulnerability became brutally visible when petrol prices surged towards Rs 450 per litre, and diesel crossed Rs 500, marking increases of over 40 to 50 per cent within a single adjustment cycle.

These were not routine revisions. They were the domestic manifestation of a global shock triggered by escalating conflict in the Middle East, where crude oil prices spiked above $110 per barrel amid fears of supply disruption through the Strait of Hormuz, a chokepoint through which roughly one-fifth of global oil flows. Yet while the trigger was external, the severity of the impact in Pakistan was not. It reflected something deeper and more persistent: a structural inability to absorb shocks, rooted in weak state capacity.

Pakistan consumes approximately 480,000 barrels of oil per day, according to recent World Bank estimates, while domestic production remains constrained at roughly 70,000 to 80,000 barrels. This leaves a structural deficit exceeding 80 per cent, which must be filled through imports denominated in dollars. When global prices rise and the rupee weakens simultaneously, the effect is multiplicative rather than additive.

A 10 per cent increase in crude prices combined with a 10 per cent depreciation in the rupee does not translate into a 20 per cent cost increase; in practice, it produces a far steeper escalation in the landed cost of fuel. This is precisely what unfolded as global prices rose sharply and Pakistan’s currency remained under pressure, pushing fuel costs into historically unprecedented territory.

Scale determines resilience in energy economics, and here Pakistan’s limitations become stark. India consumes more than 5 million barrels per day, more than ten times Pakistan’s demand, while the United Kingdom consumes approximately 1.5 million barrels, and the European Union collectively exceeds 12 million.

Larger markets do not necessarily face lower global prices, but they possess instruments that Pakistan lacks: diversified sourcing, strategic petroleum reserves, and the fiscal space to adjust taxes in response to price shocks. When crude prices rose during the current crisis, the United Kingdom saw fuel costs increase by roughly 15 to 25 per cent, cushioned by tax adjustments and policy buffers. Pakistan, lacking such mechanisms, transmitted the full shock to consumers almost immediately.

Refining capacity reveals an even deeper structural imbalance. Pakistan’s five refineries have a combined installed capacity of around 450,000 barrels per day, but much of this capacity remains underutilised due to outdated configurations that do not align with modern fuel demand, particularly for petrol and diesel. India, by contrast, processes over 5.5 million barrels daily across 23 refineries, while China exceeds 12 million barrels per day across more than 30 facilities.

Attempts to suppress fuel prices through subsidies provide temporary relief but exacerbate fiscal imbalances, forcing eventual price corrections that are more abrupt and more painful

Attempts to suppress fuel prices through subsidies provide temporary relief but exacerbate fiscal imbalances, forcing eventual price corrections that are more abrupt and more painful

The United Kingdom, despite declining North Sea production, maintains around 1.1 million barrels per day of refining capacity. The consequence of Pakistan’s limited and outdated infrastructure is that approximately 60 per cent of refined petroleum products must be imported, often at a premium of $10 to $15 per barrel compared to domestically processed fuel. This premium alone translates into billions of dollars in additional annual costs, amplifying the burden of already high import dependency.

The macroeconomic implications are severe. Pakistan’s oil import bill has fluctuated between $10 billion and $20 billion annually, with crude imports alone exceeding $5 billion in certain years. During periods of global price spikes, these figures rise sharply, placing immediate strain on foreign exchange reserves and widening the current account deficit. Circular debt in the energy sector, already running into trillions of rupees, further constrains the system’s ability to absorb shocks.

Attempts to suppress fuel prices through subsidies provide temporary relief but exacerbate fiscal imbalances, forcing eventual price corrections that are more abrupt and more painful. The recent surge in petrol and diesel prices, following earlier increases of 20 per cent within weeks, illustrates this dynamic clearly: deferred adjustment leads to concentrated impact.

What distinguishes Pakistan’s situation is not merely exposure to global markets but the absence of mitigating structures. India, despite importing 85 to 90 per cent of its crude oil, manages volatility through a combination of refining depth, tax flexibility, and strategic reserves. During price spikes, excise duties can be reduced to cushion consumers, while diversified import contracts limit supply risk.

The European Union employs coordinated reserves and regulatory frameworks to stabilise markets, while the United Kingdom leverages institutional credibility and fiscal tools to smooth fluctuations. Pakistan, by contrast, operates without significant reserves, with limited fiscal space, and with a currency that amplifies rather than absorbs external shocks.

These structural weaknesses are not accidental; they are the result of sustained governance failures. The expansion of domestic refining capacity has been repeatedly delayed despite decades of recurring energy crises. The 2007 refinery upgrade policy, which aimed to increase capacity by approximately 50 per cent, remains largely unimplemented more than fifteen years later.

Modern refineries require investments of $5 to $10 billion and demand policy stability over 20 to 30 years, including predictable taxation and regulatory clarity. Pakistan has consistently failed to provide these conditions. Policies are announced and revised, incentives are offered and withdrawn, and approvals are delayed by bureaucratic fragmentation. Investors do not avoid Pakistan because of risk alone; they avoid it because of uncertainty.

Prices are not determined solely by global markets; they are shaped by domestic capacity, institutional strength, and policy coherence

Prices are not determined solely by global markets; they are shaped by domestic capacity, institutional strength, and policy coherence

Meanwhile, capital has flowed into less demanding segments of the energy chain. Oil marketing companies and retail fuel stations have proliferated because they require relatively modest investment and offer quicker returns. This has created a visible expansion at the retail end while leaving the production and processing base underdeveloped. The result is a structurally imbalanced system in which consumption infrastructure grows while supply capacity stagnates, locking the country into dependence on imported refined fuel.

The current global crisis has also exposed the fragility of Pakistan’s energy transition strategy. While countries such as the United Kingdom are moving towards electric mobility with clear timelines—phasing out internal combustion engines by 2035 and supporting the transition with tens of thousands of charging points and substantial fiscal incentives—Pakistan’s approach remains fragmented. Electric vehicle adoption remains below 1 per cent, constrained by limited infrastructure and policy inconsistency.

A credible transition would require approximately $1 billion in investment over five years for charging networks and targeted subsidies, with potential returns of 12 to 15 per cent through reduced fuel imports. Yet without coordinated planning and grid modernisation, such gains remain theoretical.

Even within the traditional energy framework, the economics of reform are compelling. A new refinery with a capacity of 200,000 barrels per day, costing around $7 billion, could generate annual savings of $1.2 to $1.5 billion through import substitution, achieving a return on investment within six to seven years under current conditions. Sensitivity analysis reinforces the robustness of this case.

If global oil prices were to decline by 15 per cent, the return period would extend to eight or nine years, still within acceptable investment horizons. If the rupee were to depreciate by a further 20 per cent, the savings would rise to approximately $1.7 billion annually, shortening the return period to five to six years. These figures demonstrate that even under volatile conditions, structural investment remains economically rational.

The failure to act on such opportunities reflects a deeper issue of state capacity. Energy policy in Pakistan has historically been reactive rather than strategic, focused on short-term price management rather than long-term system development. Decisions are shaped by electoral cycles rather than economic timelines, resulting in a pattern of delayed investment and recurring crises. The consequences are now evident in the scale of recent price increases, which far exceed those experienced in comparable economies facing the same global shock.

Breaking this cycle requires a reorientation of policy towards long-term capacity building. Immediate priorities include stabilising the currency, streamlining regulatory approvals, and insulating energy policy from political volatility. Medium-term efforts must focus on expanding and upgrading refining capacity while building the infrastructure required for a gradual transition to electric mobility. Over the longer term, strengthening institutional credibility and maintaining policy continuity will be essential to attracting the scale of investment required.

Pakistan’s fuel price crisis is often presented as a question of affordability at the pump. In reality, it is a reflection of the system behind it. Prices are not determined solely by global markets; they are shaped by domestic capacity, institutional strength, and policy coherence. Countries with robust systems absorb external shocks. Countries without them transmit those shocks directly to their citizens.

The recent surge in petrol prices, driven by geopolitical conflict but magnified by domestic weakness, is not an anomaly. It is a predictable outcome of structural fragility. Pakistan does not lack the resources or the economic rationale to build a more resilient energy system. What it has lacked is continuity, credibility, and the willingness to prioritise long-term stability over short-term relief. Until those conditions change, fuel will remain expensive, not because it must be, but because the system continues to make it so.

© The Friday Times