As the conflict involving Iran, the United States and Israel enters its second month, Pakistan’s economy stands at a critical and increasingly perilous juncture. What appeared in late 2025 as a tentative stabilisation—with moderating inflation, steady remittance inflows and modest growth—has been violently upended by the surge in global energy prices.

The government’s decision on 2 April 2026 to implement a massive fuel price adjustment, effective 3 April, has crystallised the risks. Petrol prices have jumped by Rs 137.24 to Rs 458.41 per litre, while high-speed diesel (HSD) has soared by Rs 184.49 to Rs 520.35 per litre. These increases follow an earlier Rs 55 per litre hike in early March and represent a cumulative rise of approximately 66 per cent in petrol prices since the conflict began.

The move combines the full pass-through of higher imported oil costs with a deliberate increase in the Petroleum Development Levy (PDL) on petrol—from around Rs 106 to Rs 161 per litre—to make up for shortfalls in meeting overall tax revenue targets. At the same time, the PDL on diesel has been abolished entirely. Far from merely curbing implicit subsidies, this policy has dramatically amplified the threat of resurgent inflation and economic stagnation.

Pakistan’s response stands in sharp contrast to several other Asian economies. There has been no or negligible increase in petrol prices in India, Bangladesh and Indonesia despite the same global shock. In this regard, Pakistani consumers—alongside those in Myanmar and the Philippines—rank among the worst hit in Asia and the world.

A key reason is the weak financial position of these countries. In Pakistan’s case, the government is trying to make up for the shortfall in tax revenue targets by hiking taxes on petrol and passing on the burden of rising imported oil prices. Despite active diplomacy and heightened visibility in efforts to end the war and secure a ceasefire, Pakistan has not been able to secure oil at concessional rates from Gulf countries, though it has secured some regular shipments.

Global oil markets remain chaotic, with physical spot prices for Brent crude exceeding $140 per barrel—the highest since 2008—amid disruptions in the Strait of Hormuz. Futures prices hover lower, but the real-world cost of imported barrels, particularly Dubai crude benchmarks used in Pakistan’s pricing formula, is what the economy must absorb.

This aggressive pass-through, layered with additional taxation via the PDL, will feed directly and rapidly into broader price levels. Fuel costs flow almost immediately into transport fares, logistics expenses, food prices and electricity tariffs. In an economy where low- and middle-income households allocate 40–50 per cent of their budgets to essentials, the impact will be immediate, widespread and regressive.

Official data for July 2025 to February 2026 show merchandise exports at approximately $20.5 billion, down about 7 per cent year-on-year, while imports climbed to........

© The Friday Times