PIDE advocates oil stock monitoring, hedging
A $10-per-barrel rise in oil prices increases import bill by $1.25 to $1.5 billion per year. PHOTO: FILE
The Pakistan Institute of Development Economics (PIDE) on Thursday released a new "policy viewpoint", cautioning that escalating geopolitical tensions in the Middle East could trigger a sharp increase in global oil prices, which would pose serious risks to Pakistan's inflation outlook, external balance and overall economic stability.
The study, authored by Dr Abida Naurin, Assistant Professor and member of the Macro Policy Lab at PIDE, highlights Pakistan's structural vulnerability due to its heavy dependence on imported petroleum and limited strategic reserves, according to a press release.
The report noted that rising geopolitical risks surrounding the Strait of Hormuz, a critical maritime corridor that carries about 20% of global seaborne oil trade, had already pushed crude oil prices upwards in early 2026. As tensions linked to the US-Israel-Iran conflict intensify, the resulting uncertainty has added a significant geopolitical risk premium to global energy markets, increasing volatility in oil prices.
The study warned that, in a worst-case scenario, such as a three-month disruption in the Strait of Hormuz, global oil prices could surge to between $120 and $150 per barrel. Under such circumstances, Pakistan's monthly petroleum import bill could rise sharply, while consumer inflation could also increase.
It cautioned that even moderate increases in oil prices could widen Pakistan's current account deficit and intensify macroeconomic pressures. Rising shipping insurance and freight costs and supply delays could further increase import expenditures and weaken foreign exchange reserves, raising the risk of broader economic instability.
To mitigate these risks, the study recommends a combination of immediate and long-term policy measures. In the short term, it calls for strengthened monitoring of fuel stocks, diversification of import routes and suppliers and the exploration of oil hedging strategies to protect against price volatility.
In the medium to long term, the report stresses the importance of expanding strategic petroleum reserves, diversifying energy imports and accelerating investments in renewable energy and energy efficiency to reduce Pakistan's vulnerability to global oil shocks.