Fuel price surge rattles recovery

The recent surge in petroleum prices has once again pushed Pakistan's fragile economic recovery into uncertain territory as global oil markets remain volatile amid tensions in the Middle East.

With petrol currently priced at Rs321.17 per litre and high-speed diesel at Rs335.86, households and businesses across the country are bracing for further pressure even as the government signals it may try to absorb future shocks rather than pass them directly to consumers.

Officials in Islamabad say authorities are exploring options, other than adopting austerity measures, to prevent another sharp increase in domestic fuel prices in the coming weeks. Among the measures under discussion is approaching the International Monetary Fund (IMF) to seek flexibility in reducing the petroleum levy so the government can partially cushion consumers from rising international oil costs.

Global crude markets are experiencing unusual swings driven by geopolitical developments. Oil prices surged earlier this week to nearly $120 per barrel amid fears that escalating tensions involving the United States, Israel and Iran could disrupt supply routes in the Middle East. The situation briefly eased after the US president suggested the conflict with Iran was "pretty much over" following diplomatic contacts that reportedly included discussions with Russian President Vladimir Putin.

At the same time, sanctions on Russian oil were temporarily relaxed, allowing major consumers such as India to resume purchases. This helped push crude prices down to around $81 per barrel earlier in the week. To stabilise the situation, the 32 members of the International Energy Agency agreed to release 400 million barrels of oil as about 25% of global oil supplies through the Strait of Hormuz area had halted.

However, renewed strikes targeting key oil facilities and depots in parts of the Middle East have again unsettled markets, with Brent crude climbing back toward the $100 per barrel mark as of Thursday.

For Pakistan, which relies heavily on imported energy, such volatility creates immediate economic challenges. Analysts warn that a sustained rise in global oil prices would increase the country's import bill, place pressure on the rupee and push inflation higher at a time when policymakers are attempting to stabilise prices after a difficult period of economic adjustment.

"Though the country is managing to keep fuel supply intact and we saw a couple of oil cargos arrive at Karachi port, the unbelievable hike of Rs55 per litre is something no one can absorb," an economist said while speaking with The Express Tribune.

He said that apparently things are not in the hands of the government alone. "They previously said they have enough oil stocks sufficient for the month of March, then they increased oil prices exorbitantly, nearly 20%. This confusion among government officials is the reason why no one is ready to believe them when they say they will not hike prices again."

"I think they have seen an opportunity in this crisis to build up their dollar reserves," he added.

The uncertainty is already feeding anxiety among ordinary citizens, many of whom are still adjusting to the steep Rs55 per litre increase announced earlier. In markets and public transport hubs across major cities, discussions about another potential price hike this weekend have become common, although officials say much of the speculation circulating on social media is based on misinformation.

The impact of the latest adjustment has already begun to filter through the economy. Transport fares, including railways, have edged higher while wholesalers and retailers report rising distribution costs as freight operators pass on the increased diesel expense.

The timing has made the situation particularly difficult for households as the country is also observing Ramazan, a period when food prices traditionally climb due to seasonal demand and profiteering. For many daily wagers, the combination of routine Ramazan inflation and the fuel price shock has significantly tightened monthly budgets.

"Since the fuel hike, we have seen a sudden drop in our work," said Muhammad Shahbaz, a workshop owner. "In the last 10 days of Ramazan, people normally used to adjust their vehicles for the Eid season, but now we are waiting for customers and witnessing nearly a 70% drop this year. The alarming thing is that there is a strong feeling oil prices will once again rise. I may manage Eid, but how will my workers celebrate this festival?" he asked.

"The Ministry of Finance should use the Rs390 billion contingency fund, which will expire on June 30, 2026, to offer targeted relief to the public and the business community," said Mehboobur Rehman, President of the Pakistan Business Forum, suggesting a way to offset inflation. He added that petrol prices should be reduced from $1.15 to around $1 per litre. "The government should temporarily absorb up to Rs80 per litre through this fund for two months to ease inflation and industrial cost."

Nevertheless, nearly all households and businesses are hoping tensions in the Middle East ease before another surge in global crude prices, as hinted by the US president about a possible end to the war, so policymakers are not forced to make difficult decisions once again.