Pakistan's Strategic Shift: U.S. Oil Imports and the Quest for Trade Balance

A cargo ship laden with crude oil departs a U.S. Gulf Coast port, its destination the Arabian Sea, symbolizing Pakistan’s pivot toward diversifying its energy imports to rebalance trade with Washington.

Pakistan is exploring a bold plan to import 10% of its crude oil and petroleum products from the United States, aiming to chip away at its $3 billion trade deficit with America while navigating U.S. tariffs. The initiative, part of a broader strategy to strengthen bilateral ties, reflects Islamabad’s urgent need to stabilize its economy amid rising trade imbalances, particularly with the Middle East. But will this move pay off, or could it strain Pakistan’s already fragile finances?

The Oil Equation: Cost vs. Strategy

The proposal, set for approval by Pakistan’s Economic Coordination Committee (ECC), seeks to offset the 29% U.S. tariffs on Pakistani goods by increasing energy purchases from America. While U.S. crude would cost roughly $3 more per barrel in transportation compared to Middle Eastern suppliers, the government plans to absorb most of this expense, limiting the consumer impact to a mere 0.50 rupees per liter.

The math here is critical. If U.S. crude prices are competitive enough to offset the $3/barrel premium, Pakistan could secure a strategic advantage. However, the Middle East remains a closer, cheaper source—especially as Dubai crude typically trades at a discount to Brent. Pakistan’s trade deficit with the region widened to $9.35 billion in the first eight months of FY2024-25, driven by a 20% surge in petroleum imports. Shifting even 10% of that volume to the U.S. would require a compelling price incentive.

Beyond Oil: A Trade Overhaul

The oil imports are just one prong of a larger plan to rebalance trade with the U.S. Pakistan aims to boost imports of U.S. machinery, soybeans, steel, and iron—sectors where American firms like could benefit. Simultaneously, Islamabad is addressing U.S. concerns over intellectual property rights and non-tariff barriers, such as customs delays and sanitary standards, to secure better trade terms.

A Pakistani refinery worker inspects a pipeline, highlighting the infrastructure investments needed to handle U.S. crude, which may differ in sulfur content and refining requirements from Middle Eastern oil.

The Middle East Dilemma

Pakistan’s trade ties with the Gulf Cooperation Council (GCC) are also evolving. While exports to the UAE and Saudi Arabia rose 5.8% and 10.6% respectively, they pale against the $9.35 billion Middle East trade deficit. This gap is driven by soaring crude prices and the dominance of Gulf petrostates in energy supply chains. Diversifying energy imports to include U.S. suppliers could reduce Pakistan’s vulnerability to Gulf price swings, but it won’t eliminate the deficit entirely.

Investor Considerations

For investors, the plan highlights two key angles:
1. U.S. Energy Exports: Companies like ConocoPhillips (COP) and Pioneer Natural Resources (PXD) could see incremental demand if Pakistan follows through. However, U.S. crude’s competitiveness hinges on global price dynamics.
2. Pakistan’s Fiscal Health: The government’s pledge to absorb $3/barrel in added costs raises questions about fiscal sustainability. Pakistan’s public debt stands at over 80% of GDP, limiting its ability to subsidize imports indefinitely.

Conclusion: A Calculated Gamble

Pakistan’s move to tap U.S. oil markets is a strategic gamble aimed at reshaping trade dynamics. By targeting a 10% shift in oil imports, Islamabad hopes to soften the blow of U.S. tariffs and diversify its energy suppliers. However, success hinges on several factors:

• Price Competition: U.S. crude must remain cost-competitive with Middle Eastern alternatives after factoring in transportation.
• Geopolitical Risks: Tensions in the Strait of Hormuz or U.S.-Iran relations could disrupt supply chains.
• Domestic Costs: Subsidizing higher-priced imports strains an already overleveraged budget.

While the plan addresses immediate tariff pressures, Pakistan’s deeper challenge lies in reducing its overall trade deficits—$3 billion with the U.S. and nearly $10 billion with the Middle East. Without structural reforms to boost exports or curb energy demand, this oil pivot may offer only temporary relief. Investors should watch closely: if Pakistan can secure lower tariffs and stabilize its trade balance, sectors like energy logistics and machinery could thrive. But the path to equilibrium remains fraught with economic and political potholes.