Pakistan hikes fuel prices after oil surge

Pakistan hikes fuel prices after oil surge

Pakistan has announced a full pass-through of recent global oil price surges to domestic consumers, as geopolitical tensions in the Persian Gulf threaten to undermine the country's fragile economic recovery. Brent crude prices surged nearly 10% following Iran's retaliatory strikes against U.S. and Israeli interests, with JPMorgan warning that sustained disruptions in the Strait of Hormuz could push prices toward $120 per barrel. The government, chaired by Finance Minister Muhammad Aurangzeb, has directed oil marketing companies to adjust petrol and diesel prices fortnightly to reflect volatile international markets, with recent hikes of Rs8 and Rs5.2 per litre, respectively.

Pakistan imports 85% of its crude oil and 29% of its natural gas, leaving it highly exposed to price fluctuations. According to Ehsan Malik of the Pakistan Business Council, a $10 increase in oil prices could widen the current account deficit by $1.5–$2 billion annually. The country's energy import bill reached $17.5 billion in 2023 and is projected to nearly double by 2030. To mitigate risks, the government has initiated emergency measures, including weekly price revisions, compensation for elevated insurance costs, and exploration of alternative supply routes.

Inflation has already risen to 7% in February 2026, driven by energy and food price pressures. The government faces a delicate balancing act: passing on higher fuel costs risks exacerbating inflation and straining households, while absorbing costs could deplete foreign exchange reserves. Meanwhile, Pakistan continues to pursue offshore oil and gas exploration, with $1 billion in pledged investments for 23 newly awarded blocks. However, experts estimate $5–$30 billion in additional investment will be needed to significantly reduce reliance on imports.

The situation underscores the vulnerability of economies dependent on energy imports amid escalating regional conflicts.