KARACHI: Pakistan may once again utilize Iranian crude oil supplies following a temporary easing of US sanctions on Tehran. This shift re-opens the possibility of sourcing discounted crude for local refining to produce higher-value petroleum products.
While industry experts confirm that local refineries possess the technical capacity to process Iranian crude, significant commercial and operational hurdles remain. A primary concern is the high yield of furnace oil (FO), for which there is currently negligible domestic demand in the power sector.
Pakistan Refinery Ltd (PRL) previously maintained a long-term contract with the National Iranian Oil Company, but imports ceased entirely after the imposition of US sanctions. A former head of a leading Karachi refinery told Dawn that while the shifting sanctions landscape creates new possibilities, the outcome over the next two months remains uncertain.
Discounts, demand and tech upgrades will decide prospects for refining heavy crude grades
“We can refine Iranian light crude oil, but the high furnace oil content makes it commercially unviable without a domestic market,” the expert explained. He added that the economic feasibility depends heavily on whether Iranian crude is priced with a significant discount compared to international benchmarks and Arab crude.
Comparing the situation to India, he noted that Indian refineries utilize deep-conversion units—including hydrocrackers, hydrocokers, and residue fluid catalytic cracking units—allowing them to efficiently convert a wide range of crude grades into high-value diesel and petrol. He emphasized that Pakistani refineries would require similar upgrades to viably process heavy crude.
Over the last 16 years, most local refineries have transitioned from sour heavy to light and sweet crude to ensure economic sustainability. Currently, these refineries meet 80% of domestic diesel demand. However, diesel is experiencing demand destruction due to high stocks, with refineries operating at maximum throughput.
Data shows that Pakistan’s diesel sales in May fell to 455,000 tonnes, a 32% year-on-year and 17% month-on-month decline. Diesel production for FY25 reached 4.958 million tonnes, while July-February FY26 recorded 3.787 million tonnes. Imports stood at 2.037 million tonnes in FY25, dropping to 1.239 million tonnes during July-April FY26.
With the exception of Pak Arab Refinery Ltd, which operates a mild cracker unit, Pakistan lacks hydrocracker units. Consequently, there is an urgent need for such upgrades. According to a quarterly report ending March 31, Pakistan Refinery Ltd is coordinating with the government to restore the taxable status of petroleum products and amend brownfield policies—steps critical for the execution of the Refinery Expansion and Upgrade Project (REUP).
The REUP aims to double PRL’s processing capacity from 50,000 to 100,000 barrels per day, which would virtually eliminate high-sulphur furnace oil and enable the production of Euro V refined products.
Sania Irfan of Topline Securities noted that Pakistan could see substantial import savings. With petroleum imports totaling nearly $17 billion in 2025, sourcing from Iran—which historically offered significant discounts compared to Saudi Arabia and the UAE—could be highly beneficial. Even at current rates, Iranian grades remain cheaper than Saudi alternatives.
Estimates suggest that sourcing 10-20% of its total petroleum requirements from Iran, including freight savings, could save Pakistan between $170 million and $340 million in import costs.
