Lower fuel demand masks deeper crisis

Fuel demand drop signals weaker economic activity and rising financial strain despite efficiency claims

LAHORE:

The government's two-year energy conservation drive, aimed at cutting import costs and easing pressure on foreign exchange reserves, has led to a notable decline in petroleum consumption. However, while the measures have delivered some financial benefits, economists argue that their broader impact remains limited, with little visible change in daily urban life.

When launching its energy conservation campaign, the government claimed that various measures could save between approximately $1.5 billion and $2.7 billion annually in foreign exchange. To achieve this goal, restrictions were imposed on the use of official vehicles, operating hours of businesses and shops were limited, attendance systems in government offices were modified, and several administrative measures were introduced to reduce energy consumption.

Meanwhile, according to recent statistics, sales of petroleum products in the country have also remained under pressure. In May 2026, the total sales of oil marketing companies fell by 23 per cent year-on-year to 1.17 million tonnes. Excluding furnace oil from the total volume, sales stood at 1.14 million tonnes, which is being described as the lowest level recorded for the month of May in the past thirteen years.

According to the report, substantial increases in petrol and diesel prices also affected fuel demand. The average price of petrol reached approximately Rs402 per liter, while diesel averaged about Rs401.46 per liter. Due to high prices and reduced economic activity, diesel sales fell to a historic low of only 450,000 tonnes.

Similarly, petrol sales also declined on an annual basis, while furnace oil recorded the sharpest decrease in sales. Experts note that increased electricity generation from hydropower and the availability of alternative fuels have also reduced demand for furnace oil.

According to economic circles, although lower petroleum consumption may be viewed as a positive development, economic slowdown and growing financial pressure on the public are also major contributing factors. Experts argue that a reduction in consumption alone cannot be considered a complete success, as it may also reflect limited purchasing power among citizens and reduced business activity.

On the other hand, over the past two years, the government has used the petroleum levy as an important source of national revenue. According to available official data, approximately Rs119 billion was collected through the petroleum levy in fiscal year 2023–24, which increased to about Rs122 billion in fiscal year 2024–25. Likewise, during the first nine months of fiscal year 2025–26, more than Rs120 billion had already been deposited into the national treasury, and an even higher collection target has been set for the next fiscal year.

Economist Khalid Rasool opined that the government's austerity campaign was a positive and commendable initiative because reducing unnecessary expenditures can benefit any economy. Rasool noted that the campaign has produced some benefits, and that reduced energy consumption has been observed in certain sectors; however, the situation on the ground appears somewhat different.

"Despite austerity measures at the government level, the number of vehicles on the roads remains visibly high. This suggests that fuel consumption among the public has not decreased significantly. The government primarily sought to improve administrative efficiency and limit expenditures, but administrative decisions alone cannot produce a substantial and lasting reduction in energy use," said Rasool.

Rasool further stated that achieving sustainable results will require improved public transportation systems, promotion of electric vehicles, better urban planning, and effective progress toward alternative energy sources. "Without long-term structural reforms, it will be difficult to realise the full benefits of temporary measures," he added.