Pakistan Foresees Continued Fuel Price Relief as Global Oil Slump Unlocks Strategic Reserve Plans

ISLAMABAD: Pakistan anticipates further declines in domestic fuel prices in the immediate coming days, as the easing trend in international crude oil prices begins to filter through to local markets. Finance Adviser Khurram Schehzad told Arab News that Islamabad is simultaneously building strategic petroleum reserves to protect the country against future energy supply disruptions and geopolitical shocks.

Global oil benchmarks have retreated significantly from recent highs of around $115–116 per barrel to below $100, providing critical relief for Pakistan, a major fuel importer that relies heavily on Middle Eastern supplies. The international market experienced sharp volatility earlier this year following joint US and Israeli strikes against Iran in February. The resulting tensions, Iranian retaliation against Gulf infrastructure, and the temporary threat of closure to the Strait of Hormuz had previously sent global oil prices surging.

However, market sentiment shifted recently, with Brent crude futures dropping 8.7 percent to $94.62 a barrel, and US West Texas Intermediate (WTI) crude falling 8.3 percent to $88.12. Market analysts noted that the decline was driven by domestic political developments in the United States, which could accelerate diplomatic pathways to de-escalate and resolve the ongoing Middle East conflict.

Passing on these international gains, Pakistan reduced petrol prices by Rs9.41 per liter and high-speed diesel by Rs5.56 per liter on Thursday. This cut follows an earlier reduction announced on Wednesday, when authorities lowered petrol prices by Rs7.06 and diesel by Rs3.71 per liter, marking a consecutive period of price relief for local consumers.

“The biggest news is that oil prices have come down,” Schehzad told Arab News in an interview on Thursday. “As a result, you will also see a decline in local prices.” He explained that the transition of global declines to local retail rates would take approximately one week to fully reflect, given the country’s rolling weekly average pricing mechanism.

The downward trend in fuel prices offers a vital economic buffer for Islamabad as it strives to stabilize domestic inflation, which climbed to 9.6 percent in October. In response to the earlier energy-driven inflationary pressures, the State Bank of Pakistan raised its key policy rate by 50 basis points to 12 percent last week. The central bank projects inflation to moderate to between 5 and 7 percent by the end of the fiscal year in June.

Despite severe supply chain disruptions and conflict in the Gulf, Pakistan did not experience fuel shortages, long queues at petrol stations, or significant law-and-order issues. Schehzad attributed this stability to the rapid, grassroots transition to solar energy and robust strategic relationships with regional energy suppliers. “Pakistan’s strong strategic relationships with Middle Eastern countries, particularly Saudi Arabia, supported us considerably,” the adviser stated.

Key regional suppliers, including Saudi Arabia, the UAE, Qatar, and Kuwait, prioritized Pakistan’s fuel and crude oil supply needs, ensuring seamless deliveries throughout the period of regional crisis. To build on this resilience, the government is developing a tax-exempt, oil-bonded storage facility. This infrastructure will allow Pakistan to store crude oil and petroleum products supplied by Saudi Arabia and other partners, with the sovereign right of first access to the stored supplies in the event of a regional emergency.

Alongside the bonded storage initiative, Pakistan is establishing its first-ever national strategic petroleum reserves. While commercial operators currently maintain stocks sufficient for 20 to 22 days of national consumption, the government intends to expand total reserves to cover 30, 35, or even 40 days of demand. “Regardless of what happens in the region—whether conflict or other disruptions—we will have access to crude oil and petroleum products,” Schehzad emphasized.

On the macroeconomic front, the adviser outlined a strategy to bolster Pakistan’s foreign exchange position while keeping external debt under strict control. Pakistan added approximately $45 billion to its external debt between 2015 and 2022, averaging $6.5 billion annually. However, from mid-2022 to June 2026, the increase slowed dramatically to about $4 billion, or roughly $1 billion per year. Over the same period, the State Bank’s foreign exchange reserves surged from below $3 billion in 2022–23 to $21.5 billion, representing a nearly sevenfold increase. The reserves have not been accumulated through commercial borrowing, reflecting strong organic inflows. The government plans to increase reserves further to $23 billion, and eventually $25 billion, lifting import cover from less than two weeks in 2023 to over three months, with a target of four months by the end of the current fiscal year. Schehzad noted that three months of import cover is the minimum international benchmark, while six months represents a more comfortable, highly secure position.

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