ISLAMABAD – For years, Iranian crude oil remained off Pakistan’s import list due to US sanctions, despite once being a key source of supply. Now, with Washington temporarily easing restrictions on Tehran, an old option is back on the table.
The prospect of cheaper Iranian oil revived hopes of cutting Pakistan’s massive fuel import bill by hundreds of millions of dollars. But while the opportunity appears promising, refinery limitations, weak demand for furnace oil, and commercial realities could determine whether the long-dormant trade route is reopened.
Pakistan Refinery Limited (PRL), which previously imported Iranian crude under a long-term agreement with the National Iranian Oil Company, suspended purchases after US sanctions were imposed. With restrictions now showing signs of easing, policymakers and refiners are once again evaluating the viability of bringing Iranian crude back into Pakistan’s energy mix.
Pakistan spent nearly $17 billion on petroleum products and fuel imports in 2025. If the country meets 10–20% of its petroleum requirements through discounted Iranian crude, while also benefiting from lower freight costs, annual savings could range between $170 million and $340 million.
Despite the attractive pricing, refinery executives warn that economics, not politics, will determine whether imports resume. A former head of a leading Karachi refinery said Pakistani refineries can technically process Iranian crude, but the outcome will depend on pricing and market conditions over the coming months.
The biggest obstacle is the high furnace oil (FO) yield associated with Iranian crude. As demand for furnace oil in Pakistan’s power sector has largely disappeared, refiners have limited opportunities to market the excess product. Industry experts argue that unless Iranian crude is offered at a substantial discount compared with Arab crude benchmarks, processing it locally would remain commercially unattractive.
Pakistan’s refining infrastructure is with limitations. Unlike Indian refineries, which are equipped with advanced deep-conversion technologies such as hydrocrackers, hydrocokers and residue fluid catalytic cracking units, Pakistani refineries lack the capacity to efficiently convert heavy crude into high-value fuels like petrol and diesel. Except for Pak Arab Refinery Limited (PARCO), which operates a mild cracker unit, no local refinery currently has hydrocracker technology.
Over past 16 years, Pakistani refineries have gradually shifted away from heavy sour crude in favour of lighter and sweeter grades, citing better economics and improved environmental performance. At present, domestic refineries supply nearly 80% of Pakistan’s diesel demand.
The country’s fuel market, however, is showing signs of weakness. Diesel sales dropped to 455,000 tonnes in May, marking a 32% year-on-year decline and a 17% month-on-month fall as inventories continued to build. During FY25, Pakistan produced 4.958 million tonnes of diesel while importing 2.037 million tonnes. Between July and April of FY26, diesel production reached 3.787 million tonnes, with imports standing at 1.239 million tonnes.
Meanwhile, PRL is pushing ahead with its Refinery Expansion and Upgrade Project (REUP), which aims to double refining capacity from 50,000 to 100,000 barrels per day, eliminate high-sulphur furnace oil production, and manufacture Euro V-compliant petroleum products. However, the multi-billion-rupee investment remains dependent on government approval to restore the taxable status of petroleum products and amend the brownfield refinery policy.
Historical data from 2009 to 2012 indicates that Pakistan consistently imported Iranian crude at prices below those of Saudi Arabia and the UAE. Current market trends suggest Iranian light and heavy crude grades continue to trade at a discount to Saudi benchmark prices, strengthening the economic case for renewed imports.
Petrol prices in Pakistan expected to drop by Rs20-Rs50 per litre
