Double-digit fuelinflation looms
Pakistan is likely to feel the burnt of the escalating tensions following Israel's attack on Iran, which has been further exacerbated by the United States' involvement. This situation is causing a rise in oil prices, which is expected to significantly affect domestic fuel prices in Pakistan. As global oil benchmarks continue to rise due to the increasing geopolitical tensions in the Middle East, Pakistani consumers may face another sharp increase in fuel costs.
According to market data and industry estimates, prices of High-Speed Diesel (HSD) and Petrol (Gasoline) in the international market have recorded significant gains in recent weeks. Between June 2 and June 20, 2025, the price of Gas Oil (Diesel) rose by 16.3% to $91.91 per barrel, while Gasoline (Petrol) increased by 10.9% to $82.31 per barrel. Spot prices further climbed as of June 20, 2025, with Gas Oil touching $93.3/bbl and Gasoline $83.4/bbl - reflecting a sharp 9.6% and 4.5% rise respectively since June 13, 2025, according to data compiled by the Arif Habib Limited (AHL).
In line with these developments, Pakistan's domestic fuel prices are projected to increase substantially in the upcoming fortnightly revision effective from July 1, 2025. Sources suggest that diesel prices may be raised by Rs27.34 per litre, taking the expected price to Rs289.93/litre, up 10.4% from the current Rs262.59/litre. Similarly, petrol prices are anticipated to rise by Rs21.49 per liter, reaching Rs279.92/litre, a jump of 8.3% from the prevailing Rs258.43/litre. A key factor influencing this hike is the depreciation of the Pakistani Rupee (PKR) against the US Dollar. The exchange rate averaged 283.6 per US dollar in the recent period, compared to 284.8 earlier, slightly cushioning the impact, but not enough to offset the surge in global oil benchmarks.
Industry experts attribute the global price rally to heightened uncertainty over supply disruptions stemming from the Israel-Iran standoff. Middle Eastern tensions are historically known to push crude prices upward due to fears of constrained supply routes and production interruptions.
Additionally, recent gains in major oil benchmarks such as West Texas Intermediate (WTI), the benchmark for the US light oil market and sourced from US oil fields,is up 12.8% to $74.8/bbl, Brent, up 14.0% to $76.86/bbl, and Arablight, up 13.0% to $76.79/bbl, reflect a broad-based increase in crude and refined product prices, directly impacting Pakistan's import costs.
If these trends sustain, the forthcoming price revision may put further pressure on inflation and transport costs, affecting various sectors of the economy. The government faces a tough balancing act amid public backlash risks and the need to adhere to IMF-mandated revenue targets.
Meanwhile, Pakistan's petroleum exports displayed a mixed performance in May 2025, marked by a sharp yearly decline but somewhat supported by robust growth in fuel oil (FO) shipments over the cumulative 11-month period of the fiscal year. Total petroleum exports dropped by 39% year-on-year (YoY) to 164,000 tonnes in May 2025, according to AHL. However, this represented a significant 53% month-on-month (MoM) recovery compared to April's volume of 107,000 tonnes, suggesting some improvement in near-term demand.
Fuel oil exports, comprising both high sulfur (HSFO) and low sulfur (LSFO) variants, continued to drive the overall petroleum export performance. During the 11MFY25 period, FO exports surged 63% YoY to reach 1.368 million tonnes, a record high, although May 2025 shipments slipped by 20% YoY to 147,000 tonnes despite posting a strong 51% MoM rebound. In contrast, naphtha exports contracted 13% YoY in May, totalling 17,000 tonnes, while crude condensate exports remained absent for the second consecutive month.
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