For those monitoring the global political situation unfolding in Iran and the Hormuz strait, it was obvious that fuel prices are going to go up. And for a country that imports most of its crude and refined fuels, a sudden jump in international prices turns into a pressure test of foreign exchange, inflation management, and basic fuel availability.
That is why Prime Minister Shehbaz Sharif’s office has set up a high-level committee led by Finance Minister Muhammad Aurangzeb, with the petroleum and power ministers, SBP governor, key secretaries, FBR chairman, and security-sector officials included, and asked it to meet daily and report back. The mandate is explicitly practical. To track forward and futures prices, judge supply-chain predictability, and quantify FX and fiscal consequences if the conflict persists.
But how vulnerable is Pakistan to rising fuel prices? What is the worst that could happen if the supply and prices are not restored to balance.
Why is the Strait of Hormuz important?
The Strait of Hormuz is a narrow sea passage that connects the Persian Gulf to the Indian Ocean, sitting between Iran on one side and Oman/UAE on the other. It is only about 21 miles wide at its narrowest, with shipping lanes that are just a few miles wide. That geography makes it a natural choke point: a small disruption can ripple through global energy and trade. Bloomberg notes the strait carries about a quarter of the world’s seaborne oil trade, and in 2025 tankers moved roughly 16.7 million barrels a day of crude and condensate through it.
What is happening now is not a formal “closure” so much as a functional slowdown. Bloomberg reports that ships have largely stopped traversing the strait amid Iran’s retaliation threats after U.S. and Israeli strikes, with reports of radio messages claiming transit was banned, tanker attacks, and insurers planning to withdraw war-risk cover for vessels entering the Gulf. Even without an official blockade, if ships cannot get insurance, or captains judge the risk too high, traffic slows sharply.
CNBC’s reporting underscores how quickly this fear spreads into logistics: major container lines have suspended operations through Hormuz and rerouted vessels, with Maersk pausing crossings “until further notice” and warning of delays to Gulf port calls. CNBC also flags the second pressure point: the Bab el-Mandeb route near the Red Sea, where Maersk has paused future trans-Suez sailings, forcing detours around the Cape of Good Hope.
Why does this matter globally? Because Hormuz is the exit route for most Gulf oil and gas exports. When flows look uncertain, oil prices jump, shipping costs rise (insurance and freight), and delivery times stretch—creating an inflationary shock far beyond the region.
For Pakistan, the implications are immediate. Pakistan imports much of its fuel, so higher global oil prices and higher freight/insurance costs translate into a bigger import bill, greater pressure on dollars, and faster pass-through into transport and food prices. Even if physical supply is not “cut off,” a risk-driven shipping slowdown can still mean delays, tighter inventories, and more expensive cargoes landing at Pakistani ports.
How the shock hits Pakistan in the short run
Pakistan’s oil import bill moves quickly because cargoes and product pricing are linked to global benchmarks. When prices jump, dollar outflows rise immediately for the same physical volumes. This affects not just the current account arithmetic, but also the pace at which reserves can be built. Both these things ultimately underscore the rupee’s stability, especially if the market begins to price in sustained higher energy costs.
This is why the high-level committee’s notification puts “foreign exchange implications” front and center.
The pass-through dilemma
In Pakistan, retail fuel prices are typically adjusted frequently. In a shock, the state has a choice. They can either pass through higher costs to consumers, or absorb part of the increase via fiscal measures (lower levies, higher subsidies, delayed adjustments). Either way, sooner or later, the cost arrives. Either in the form of the pass-through raising transport and distribution costs and lifting inflation, or by absorbing the shock which squeezes revenues and can widen the fiscal gap.
Power sector costs can rise even if crude is the headline
Pakistan’s power generation mix is more complex than “oil equals electricity,” but oil-price spikes often ripple into furnace oil or diesel-based generation costs where used. It also raises significantly, the logistics costs across the energy supply chain. And most importantly, the broader expectations of inflation, which influence interest-rate and financing costs for the sector.
If a price spike persists, it can feed into circular-debt dynamics through higher input costs and delayed recoveries, especially if tariffs are not adjusted in step.
Physical supply risk: shipping, insurance, and timing
Even if Pakistan can pay, it still has to receive cargoes. In a Gulf disruption, the first operational bottlenecks are often, higher freight rates, higher war-risk insurance premiums, vessel delays and re-routing.
Reuters reporting on the latest escalation pointed to shipping disruptions and heightened risks around Hormuz, which is exactly why the committee is tasked with assessing “supply chain predictability.”
Working capital strain for OMCs and refineries
When prices rise sharply, the rupee value of inventories increases. That can stress the working-capital cycle of oil marketing companies (OMCs) and refineries.
It also has a similar impact on large credit providers for buyers. So if bank credit tightens or becomes cautious during geopolitical risk, the system can face liquidity stress even before there is a physical shortage.
How oil prices feed inflation indirectly
When global oil prices rise, Pakistan’s import cost for petrol, diesel, and furnace oil increases, and if the government passes that through to consumers, pump prices rise and headline CPI moves up directly. Even before official adjustments, businesses often price in expected increases. Diesel then amplifies the shock because it powers logistics: higher diesel lifts freight rates, raising the delivered cost of food and everyday goods, even when local supply is unchanged.
Oil-price spikes can also push up energy costs through furnace-oil or diesel-based generation, backup generators, and broader supply-chain energy use; if tariffs adjust, household bills rise, and if they do not, the fiscal burden can reappear later as inflation. Firms facing higher input and transport costs typically respond by increasing prices or shrinking pack sizes, creating cost-push inflation. A larger oil bill can also weaken the rupee by increasing dollar outflows, making imports across the economy more expensive. Finally, expectations matter: once households and firms anticipate inflation, pricing, stocking, and wage demands adjust in ways that can reinforce the cycle.
How does the government respond?
And that is where the response of the government becomes extremely important. If the state passes through prices, inflation rises quickly but fiscal damage is smaller. If the state suppresses prices (by lowering levies/subsidizing), inflation is delayed; but fiscal stress and later adjustments can still feed inflation.
So oil affects inflation both immediately (fuel and transport) and structurally (rupee pressure, energy costs, and expectations). And a balanced approach by the government can make all the difference in avoiding a horrific economic scare for the common man.
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