Managing wartime volatility
HERE is a quick round-up of the economic vulnerabilities opening up ahead of us. Please don’t panic when you read this. Pakistan has faced worse before and emerged from it.
The price of oil for Pakistan has surpassed the historic peak set in 2008 this week. The two benchmarks that Pakistan uses to price its imports — Dubai and Oman crude — both crossed the $150 threshold in recent days. Dubai crude fell to around $120 after this (according to oilprice.com data) while Oman stayed elevated.
The last fuel price adjustment on Friday, March 13, held prices steady with the government agreeing to absorb the impact of the price rises that have come subsequent to the Rs55 per litre hike of March 6. According to the directive from the Prime Minister’s Office, the cost of maintaining these caps is estimated at Rs23 billion for the seven days running from March 14 to 20 alone.
That’s a lot of money; Rs23bn just to maintain a price cap for seven days. And the price hike peak came after these caps were announced. So by this Friday either they’ll have to announce an even bigger allocation for the following week, or announce another massive price increase. How massive, you might ask? Well last Friday there was supposed to be a hike of Rs75 and Rs50 per litre each for diesel and petrol respectively. That’s on top of the Rs55 per litre increase already applied on March 6. If they decide to unwind these caps now, and pass on whatever price increases the market has seen since last Friday, you could be looking at triple digit hikes potentially. Any ruler would hesitate before such a decision.
The most important thing is to ensure that Pakistan stays out of the fighting, no matter the cost.
But they cannot continue with the caps for very long because the country is on an IMF programme, and will have to justify how it plans to pay for these caps. At the moment, they are clawing funds for the purpose from other heads, but fuel price caps get extremely expensive, very fast. Tens of billions of rupees per week add up to hundreds of billions within a few weeks. This is what happened in 2022 when the government of Imran Khan tried to maintain caps in the face of a price spiral due to the Ukraine war. Back then, Dubai and Oman crudes had touched peaks of $120 per barrel, far below the $150 threshold they are around today. And the real price hikes in international oil markets are yet to come.
Next up is the shortages of diesel and the looming fertiliser crisis due to halt in gas supply disruptions. The fertiliser crisis will, thankfully, not be as big of a burden at this time because its next big surge of demand will come after June, for the cotton crop. That month is too far away to make any calls at the moment, but we should all pray that the war ends by then and normality returns (though chances of the latter are slim).
The diesel shortages are a source of concern. In the July-January period of FY26, just over 4.2 million tons of diesel were consumed in the country. Of this, 1m ton was imported and 3.3m ton were produced in local refineries. If imports should plummet, refineries will need to significantly ramp up their diesel output to ensure adequate supplies during the wheat harvesting season. From the word in oil industry circles, refineries have already been told to focus on diesel and jet fuel, especially the sort used in fighter planes, to maintain adequate stocks.
The shock to commercial shipping is huge and not receiving enough attention. The ports of the Gulf have always served as crucial transit points for westbound cargoes. Two-thirds of Pakistan’s exports transit through these ports on their way to markets in the EU or North America. Since the war began, commercial shipping has largely stopped in all the ports that are behind the Straits of Hormuz.
According to people in the shipping industry, no export consignments have left for at least 10 days, and import consignments that were to transit through these ports have not arrived either. Trade with the East is continuing fine, however. In effect, the closure of these Gulf ports has cleaved the world economy into two halves since these were all critical transhipment points for global maritime traffic.
As a result, imports of crucial raw materials for industrial processes have been severely impacted in some cases. The pharmaceutical industry has felt the impact; plastic imports have been severely curtailed along with many other raw materials. If the port closures drag on, raw material shortages could lead to some plant closures unless they succeed in finding alternative sources of supply from the east.
So far remittances seem to be holding steady, as per a few conversations with people in the banking industry. This is an incomplete picture obviously, but it’s enough to note that alarm bells don’t seem to be ringing in remittances so far. Let’s hope that trend holds through March.
Pakistan is going to be pressured to enter the war because Saudi Arabia has a mutual defence agreement with it, and also has considerable leverage due in part to the $3bn deposit that was rolled over in December.
That deposit has a call option, where the issuer can call for redemption if Pakistan’s IMF programme runs aground. And the Fund programme is already in choppy waters as the third review has still not been completed. In order to pass the review, the government will most likely have to show more serious external sector projections given the shocks the economy is experiencing, as well as a more serious revenue plan for the remaining months of the fiscal year. Let’s hope it stops at that.
If geopolitical compulsions start playing a role, Pakistan’s room to stay away from the conflict will constrict. And the most important thing is to ensure that Pakistan stays out of the fighting, no matter the cost.
The writer is a business and economy journalist.
Published in Dawn, March 19th, 2026
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