AS global oil markets reel from the latest tremors in the Middle East, Pakistan finds itself in a familiar, painful position at the mercy of price volatility. There is no point for the public to look towards the government for immediate relief, for true relief will not come from temporary subsidies, but from a fundamental structural shift. The road to a lower import bill and stable fuel prices is blocked not by a lack of technology, but by a lack of policy certainty.

To understand the crisis, one must understand the ‘refining gap’. Think of our current ‘hydro-skimming’ refineries like a primitive sugar mills that can only crush sugarcane to produce raw juice and a mountain of waste, but lack the machinery to turn that waste into refined sugar. In technical terms, these aging plants produce up to 40 per cent furnace oil from every barrel of crude — a product that was once the backbone of our power sector, but is now effectively a waste by-product.

In the first eight months of FY25 alone, Pakistan exported 1.4 million metric tonnes of furnace oil at a massive loss. We are essentially exporting ‘waste’ at a discount, while simultaneously spending billions of precious foreign exchange to import expensive, finished Euro-V fuels. We need to look at our neighbours to see what a ‘refining fortress’ looks like.

India has built a refining capacity of over 5.2 million barrels per day, allowing it to process the cheapest crudes and turn them into high-value exports. Similarly, a refinery in Turkiye has slashed its dependence on imported finished products by ‘manufacturing’ fuel locally. These nations capture the value-added margin that Pakistan currently cedes to foreign suppliers as an ‘import premium’, a fee that costs us four to eight dollars per barrel more than if we refined it ourselves.

As such, successful modernisation of our refining sector would yield immediate and transformative benefits for the national economy at large. By transitioning to deep- conversion technology (hydrocrackers), which essentially cracks heavy waste molecules into high-quality petrol, Pakistan could realise an annual foreign exchange saving of $2-3 billion. This would be achieved by shifting the import mix from expensive finished products to cheaper raw crude.

Furthermore, the elimination of the furnace oil loss allows refineries to operate at higher margins without needing to pass on inefficiency costs to the consumer. For the average Pakistani, a change would translate to a more stable rupee, and a significant cushion at the petrol pump during global supply shocks.

However, these $6 billion upgrades are paralysed by policy inconsistency. The 2024-25 budget change, which shifted petroleum products from zero-rated to exempt, has created a tax deadlock. As a result, refineries can no longer claim back billions in sales tax paid on machinery imports, making these upgrades bank-unfriendly. No international lender, nor giants like Saudi Aramco, will sink $10 billion into a project if the tax rules change with every fiscal cycle.

This is where the Special Investment Facilitation Council (SIFC) must step in with a ‘stability clause’. A legal guarantee is required to ensure that fiscal incentives remain locked for the duration of the upgrade period. In fact, the stability we are seeking is not found in price caps, but in the steel of modern hydrocrackers.

Fakhar Munir
Abu Dhabi, UAE

Published in Dawn, March 28th, 2026