Iranian oil smuggling surges again

Amid the US-Iran war, smuggled petroleum products from Iran have started flooding Pakistan's markets, stoking fears among local oil refineries.

For the past more than two months, Iran has closed the Strait of Hormuz, a key shipping channel from where most of the global oil supplies pass. Owing to this situation, oil prices have jumped significantly across the world and even Pakistan is not insulated from its repercussions.

Pakistan's weekly oil import bill has swelled from $300 million to $800 million, constraining the overall economy. In the face of persistent uncertainty, the smuggling of petroleum products from Iran has surged to high levels, which are a direct threat to the local oil industry.

Sources told The Express Tribune that all refineries including Pak Arab Refinery (Parco), Pakistan Refinery Ltd (PRL), National Refinery Ltd (NRL) and Attock Refinery Ltd (ARL) had written a joint letter to the chairman of Oil and Gas Regulatory Authority (Ogra), in which they warned that smuggled petroleum products from Iran were posing serious threats to the refineries' operation.

"We refer to a meeting convened by Ogra over the weekend to deliberate on low procurement from local refineries," they said, adding that during discussions the refineries collectively highlighted that rather than curtailing refinery production, all possible measures might be considered to address the increasing cross-border inflow of petroleum products, which appears to be impacting demand for locally refined products.

They were deeply concerned that, if left unaddressed, such inflows might increase further and potentially reach levels observed in previous years, thereby adversely affecting refinery throughput, operational sustainability and the overall domestic supply chain.

"In view of the above, we request Ogra to highlight the potential adverse implications of such unregulated cross-border product inflows for refinery operations and to consider recommending appropriate enforcement and monitoring measures to safeguard the integrity of the domestic petroleum supply chain," they said in the letter.

In 2024, intelligence agencies had unearthed a racket involving 738 petrol filling stations, smugglers and officials, who collaborated to smuggle Iranian petroleum products, inflicting an annual loss of Rs227 billion to the national exchequer.

They revealed that around 533 petrol pumps, 100 corrupt officials and 105 Iranian oil smugglers were part of the racket, who indulged in illegal trade of petroleum products. They were bringing oil via land and sea routes to Pakistan.

Following this, Pakistan's military and civilian leadership took action to control the illegal arrival of petroleum products from Iran. However, some insiders see it as a blessing in disguise for Pakistan at a time when oil prices have surged and even availability of petroleum products is at stake due to the closure of the Strait of Hormuz.

Kuwait and Saudi Arabia have recently sent oil cargoes to shield Pakistan from the looming oil crisis. Pakistan has long been unable to build strategic oil reserves and therefore risks of shortages are running high. Now, the government has started considering creating strategic oil buffers to stave off the threat of scarcity.

Iranian petroleum products, including diesel and petrol, are smuggled primarily through the unfrequented routes in Makran and Rakhshan divisions. These products even reach Southern Punjab and Sindh.

The annual volume of oil smuggling is estimated at 2.8 billion litres, which has resulted in a loss of at least Rs227 billion to the national exchequer. The smuggled oil is mainly sold at unauthorised roadside petrol outlets.

In 2023, the Iranian oil smuggling peaked at 10.1 million litres per day, which later dropped significantly to 5 to 5.3 million litres in the wake of a crackdown by the previous caretaker government.

It is estimated that around 5,000 tons of high-speed diesel (HSD) is being smuggled into the country every day against total demand for 22,000 tons. This constitutes nearly 23% of HSD consumption. The government is reportedly losing Rs80 per litre in petroleum levy and customs duty, translating into an estimated revenue loss of Rs475 million per day.

In this scenario, a surprising statement from the Balochistan government published in the national media during the first week of April 2026 called for allowing sale of smuggled Iranian diesel at Rs280 per litre in the province. What is even more alarming, say industry players, is a proposal to ask refineries to reduce diesel production instead of taking effective anti-smuggling measures. "Such an approach will send highly negative signals to refiners," they argued.

"One fails to understand how refineries can be expected to invest billions of dollars in plant upgrades and capacity enhancement under these circumstances, particularly when their existing production cannot be sold due to the unchecked inflow of smuggled products."