KARACHI: The heavy influx of smuggled Iranian oil has captured 25 to 30 per cent of the diesel market in Pakistan depriving the national exchequer of billions of rupees in taxes and duties and forcing the domestic refiners to slash their production.

A detailed report issued by the S&P Global Commodity Insights quoting several officials, analysts and oil producers, said cheaper Iranian diesel has rapidly gained popularity among Pakistani consumers looking for affordable fuels.

A shortage of dollar reserves and faltering Pakistani currency also kept fuel prices high in the country, prompting small private trading companies and individuals with a business network in Iran to purchase heavily discounted diesel, said industry analysts, including Tahir Abbas, head of research at Karachi-based broking firm Arif Habib Ltd.

Pakistan’s inflation rate surged to 36.4 per cent in April, the highest since December 1973.

Gasoline sales in Pakistan fell 24 per cent from a year earlier to 580,000 tonnes in April, while diesel sales dropped 50 per cent year-on-year (YoY) to 460,000 tonnes and fuel oil consumption plunged 83 per cent to just 70,000 tonnes during the period, the latest data from Oil Companies Advisory Council (OCAC) and oil marketing companies showed.

Industrial, transportation and agricultural activities have slowed as inflation rates surged. Gasoline sales during the first 10 months of the fiscal year fell 17pc to 6.173 million tonnes, while diesel sales tumbled 28 per cent YoY to 6.173m tonnes, OCAC data showed.

According to the report domestic refiners in Pakistan are facing tepid consumer demand because of a sharp slowdown in economic activity, with the country’s oil product sales in April tumbling 46 per cent YoY to 1.17m tonnes, or about 8.8m barrels, according to OCAC.

The widespread availability of Iranian diesel, especially in the southern region of the country, is hurting refiners’ diesel sales due to a significant price spread between Pakistani and Iranian barrels, said Insight Securities, a Karachi-based broking firm.

The average retail price of diesel has been Rs288 per litre in recent weeks in Pakistan, while Iranian diesel has been selling as low as Rs230/litre.

According to market observers, private dealers have been able to make decent profits by selling Iranian diesel at a price that is Rs35/litre cheaper than local diesel.

However, between 35,000 and 60,000 barrels per day of diesel could have flowed into the domestic market through southern sea and land transportation routes under the radar in recent months and it’s possible that the volumes could rise, according to estimates from a senior executive at Attock Refinery and a middle distillate distribution management source at Pak Arab Refinery, or PARCO, who declined to be identified.

Pakistan officially banned imports of Iranian oil after the US enforced sanctions on Iran’s petroleum and petrochemical trade in 2013.

“Infiltration of Iranian diesel is growing and it could substitute as much as 25pc to 30 per cent of Pakistan’s total diesel sales,” a private dealer told S&P Global.

The influx of Iranian diesel has also led to revenue losses in billions of rupees for the government, refining industry participants said.

Published in Dawn, May 6th, 2023