Recent geopolitical tensions in the Middle East have once again underscored the vulnerability of oil-importing economies to external energy shocks. Concerns over potential supply interruptions through the Strait of Hormuz have heightened volatility in international crude oil markets, pushing prices close to $120 per barrel and keeping the average price around $79.8 per barrel in July 2026.
According to the International Energy Agency (IEA), about 20 million barrels of crude oil and petroleum products pass through the Strait of Hormuz every day, a strategic chokepoint that facilitates nearly 20 per cent of international oil shipments, making it one of the world’s most critical energy transit routes.
For Pakistan, these variations stress a longstanding structural challenge: heavy dependence on imported crude oil and petroleum products. During FY25, Pakistan imported about 8.2m tonnes of petroleum products, while crude oil imports reached around 9.8m tonnes.
The country’s import dependence ratio for petroleum products remained high at 44pc, exposing the economy to international price fluctuations, supply-chain vulnerabilities, and external account pressures. The implications extend beyond energy markets. UN Conference on Trade and Development has already estimated that global merchandise trade growth could slow from 4.7pc in 2025 to between 1.5pc and 2.5pc in 2026 as disruptions in the Strait of Hormuz raise transportation costs, insurance premiums, and financial stress across developing economies.
Pakistan’s import dependence ratio for petroleum products remains high at 44pc, exposing it to international price fluctuations and supply-chain vulnerabilities
The transmission of global oil price shocks to domestic markets has been both swift and pronounced. Between January 2023 and August 2026, petrol prices increased from Rs214.8 per litre to Rs333 per litre, representing a 55pc increase, while diesel prices rose from Rs227.8 per litre to Rs383.8 per litre, reflecting a 68.4pc surge.
These sharp adjustments have amplified transportation and logistics costs, increased industrial input expenses, and contributed to broader cost-push inflationary pressures across the economy. As petroleum products remain among Pakistan’s largest import categories, every $10 increase in crude oil prices significantly raises the country’s import bill.
Pakistan’s vulnerability is heightened by declining domestic crude oil production. National output fell to 3.06m tons of oil equivalent (TOE) in FY25, reflecting the depletion of mature oil fields, limited hydrocarbon discoveries, and inadequate investment in upstream exploration and production activities. As a result, local refineries rely predominantly on imported crude oil for processing.
Despite possessing considerable refining infrastructure, the sector continues to operate below its optimal potential, with capacity utilisation averaging only 50-60pc in recent years. This obstinate disconnect between installed capacity and actual throughput reflects operational inefficiencies, supply-side constraints, and policy distortions that undermine the sector’s contribution to energy security.
The cost of imported energy has also increased due to tightening international supply conditions. The US Energy Information Administration (EIA) recently warned that oil inventories in Organisation for Economic Co-operation and Development economies are expected to fall below 2.3 billion barrels by the end of 2026, the lowest level since at least 2003, while Brent crude is projected to average around $105 per barrel in the near term.
The transport sector remains the prime driver of petroleum demand in Pakistan. In FY25, petrol and high-speed diesel accounted for nearly 90pc of total petroleum consumption, with shares of 47pc and 42pc, respectively. The sector alone consumed about 14.59m tonnes of petroleum products, making Pakistan increasingly dependent on imported transport fuels. Reflecting this trend, petrol constituted 69pc of total petroleum imports in FY25, up from 61pc in FY19.
While overall petroleum consumption has declined from 22.84m tonnes in FY22 to 16.23m tonnes in FY25 due to high prices, exchange-rate pressures, and slow economic activity, the country’s structural dependence on imported fuels remains deeply entrenched. Recent EIA estimates indicate that conflict-related supply losses in the Middle East have temporarily removed around 11m barrels per day from global production, contributing to one of the fastest inventory drawdowns witnessed in decades. The rush in geopolitical uncertainty serves as a stark reminder that Pakistan’s energy security is closely tied to developments beyond its borders.
Solidifying energy resilience will require a coherent policy framework centred on enhancing domestic exploration and production, optimising refinery utilisation, diversifying the national energy mix, and improving fuel efficiency across the transport sector. Without meaningful operational reforms, future geopolitical disruptions and commodity price shocks will continue to strain Pakistan’s inflation outlook, balance of payments position, and overall macroeconomic stability.
The writer is a senior research associate at the Policy Research & Advisory Council
Published in Dawn, The Business and Finance Weekly, August 17th, 2026
