Petrol and high-speed diesel prices in Pakistan surged to unprecedented levels on Thursday, slamming consumers with record increases amid global oil market turmoil and limited fiscal space under the International Monetary Fund (IMF) programme. Petrol jumped Rs137 per litre to Rs458.4, a 43% rise, while diesel climbed Rs185 per litre to Rs520.35, marking a 55% increase.
The hikes come less than a month after a March 6 increase of Rs55 per litre for both fuels, bringing cumulative monthly rises to 63% for petrol and 75% for diesel—the steepest fuel shock in decades. Kerosene and light diesel oil prices also rose sharply, by Rs34 and Rs30 per litre, to Rs468 and Rs395 respectively.
Prime Minister Shehbaz Sharif approved a historic increase in the petroleum levy on petrol, from Rs106 to Rs161 per litre, to generate additional revenue. In contrast, the levy on high-speed diesel was abolished, with only a Rs2.5 per litre carbon levy retained. Officials said the adjustments were announced a day early to discourage hoarding and panic buying at petrol stations.
Petroleum Minister Ali Pervaiz Malik and Finance Minister Muhammad Aurangzeb delivered the announcements via pre-recorded video, marking a departure from previous occasions when the prime minister directly addressed the nation. Officials said the hikes were unavoidable after the government failed to convince the IMF to allow additional subsidies, with the fund capping total fuel relief at Rs152 billion.
Pakistan has already absorbed an estimated Rs129 billion by freezing petrol and diesel prices over three weeks, despite surging international costs. Global diesel prices have jumped by more than $46 per barrel, and petrol by around 80%, amid the US-Israel conflict with Iran and the closure of the Strait of Hormuz.
Officials said the price adjustments were necessary to protect fiscal stability and prevent Pakistan from exceeding revenue targets, which had already consumed available fiscal space. The failure to secure IMF flexibility has forced the government to pass costs directly to consumers, while social protection measures aim to shield vulnerable populations.
Under the IMF programme, Pakistan has committed to maintaining regular fuel price adjustments, while introducing targeted subsidies for low-income households, farmers, motorcyclists, and public transport operators.
The government has initiated austerity measures to create fiscal space, including a Rs100 billion reduction in the Public Sector Development Programme, a 20% cut in non-salary expenditures, and reductions in fuel allowances for official vehicles. Officials said these measures are essential to fund targeted subsidies and maintain supply-demand balance.
Despite these measures, critics note the contrast between austerity claims and continued privileges for top bureaucrats and ministers. Federal vehicles, including heavy-duty cars, continue to be used by officials, while ministers travel with full security escorts.
The fuel price surge coincides with major regional and geopolitical tensions. The US-Israel conflict with Iran has disrupted energy markets, with Iran closing the Strait of Hormuz and temporarily shutting major oil and gas fields, intensifying global price volatility.
Finance Minister Aurangzeb met US Chargé d’Affaires Natalie Baker ahead of the IMF and World Bank spring meetings to brief on Pakistan’s energy sector challenges. Discussions focused on fuel procurement, pricing mechanisms, and targeted subsidy reforms. The US side reaffirmed support for Pakistan’s stabilisation measures and highlighted potential investment opportunities in energy, mining, technology, logistics, and infrastructure.
The petroleum industry has raised concerns about proposed pricing formula changes based on a four-week Platts average and inventory cost mechanisms. Industry representatives warned that the framework lacked clarity, could disrupt refinery operations, concentrate import responsibilities, and strain financial capacity. Pakistan State Oil (PSO) cautioned that changes could create liquidity issues and discourage new supply contracts.
The government has rejected these proposals for now, preferring to maintain the existing pricing mechanism, which officials and industry stakeholders say has historically ensured supply stability during periods of volatility, including the 2022 global energy crisis.
The cumulative effect of successive fuel price hikes, rising inflation, and regional instability has placed a heavy burden on households already facing the highest poverty levels in 11 years, record income inequality, and the highest unemployment rate in 21 years. Analysts warn that continued escalation in global oil prices and domestic fuel costs could exacerbate these pressures in the coming months.
Officials said the government is formulating strategies to mitigate the economic impact of regional tensions, ensuring stable production and supply chains, supporting exports, and maintaining social protection measures. Despite these efforts, analysts warn that transport, electricity, and fuel costs will continue to weigh on household budgets and may fuel broader inflationary pressures.
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