Pakistan Proposes Tax-Free Oil Storage Hub for Saudi Arabia to Enhance Energy Trade and Route Diversification

KARACHI: Pakistan has extended an offer to Saudi Arabia for tax-neutral oil storage facilities under a newly approved bonded policy, potentially allowing Saudi firms to set up commercial petroleum reserves in the South Asian nation while diversifying supply chains, the Pakistani petroleum ministry announced on Friday.

This initiative strengthens the long-standing energy partnership between Islamabad and Riyadh, where Saudi Arabia plays a key role in meeting Pakistan’s oil demands through financial support, fuel deliveries, and infrastructure investments.

The proposal comes amid heightened U.S.-Iran tensions in the Middle East, which have disrupted shipping through the Strait of Hormuz—a vital passage for global oil trade—prompting nations to seek alternative supply pathways.

Pakistan’s Petroleum Minister Ali Pervaiz Malik met with Saudi Ambassador Dr. Rajeh bin Tami Al-Baqami on Friday to explore ways to deepen collaboration across the mining, petroleum, and energy sectors.

“We have introduced a tax-neutral bonded framework aligned with global benchmarks like Fujairah and Singapore,” Malik stated via his ministry.

“This setup enables Saudi enterprises to store oil in Pakistan without facing local taxation, creating avenues to mitigate risks linked to chokepoints such as the Strait of Hormuz and Bab Al Mandab while enhancing access to Asian markets.”

Government sources revealed that Pakistan has been engaging top-tier energy corporations from Saudi Arabia, Kuwait, the Netherlands, and Singapore to establish bonded fuel depots domestically, with projected investments reaching several billion dollars. These hubs aim to lessen dependency on Hormuz-bound shipments and bolster national strategic reserves.

Malik emphasized that these storage sites will grant Saudi Arabia more agility in navigating supply routes and tapping into regional markets. He also outlined plans to construct a large-scale petroleum terminal in Hub, Balochistan, designed to host Very Large Crude Carriers (VLCCs), positioning Pakistan as a pivotal energy transit hub connecting Central Asia and China, per the ministry.

The minister underscored opportunities within Pakistan’s ongoing refinery modernization drive—targeting Euro 5 emission norms and boosting operational performance—as attractive prospects for Saudi capital involvement.

He acknowledged Riyadh’s promptness in redirecting crude cargoes to Pakistan via Yanbu Port and explored deeper coordination with Saudi Aramco for additional crude orders and specialized LPG shipments, addressing rising wintertime gas consumption needs.

“Both nations reaffirmed their dedication to fortifying bilateral ties through expanded cooperation, investment, and win-win initiatives in energy and petroleum,” the ministry said.

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