CRUDE oil prices have significantly come down over the last few days with Brent traded at about $ 36 a barrel, a multi year low, on Monday. The crash follows the no agreement late last week amongst the members of the OPEC+ group on output cuts to stabilize already weak prices. According to the market experts, the prices are expected to go further down in the months ahead.
This indeed is not a good news at all for the oil producing and exporting countries which will face the pain of the oil price crash and many shut downs and bankruptcies can be expected as a result, especially in the US shale industry and in smaller producing countries. However, for countries like Pakistan, the price crash comes as a big relief which will benefit the country’s macroeconomic indicators. Oil is amongst Pakistan’s largest imports and reduction in its prices will definitely help it save valuable foreign exchange. This will definitely go a long way in helping the country better manage its current account deficit. It will also provide enough fiscal space to the PTI government to sail through the next couple of IMF reviews. It is however yet to be seen as to how much benefit of lowering oil prices is passed on to the consumers. The last major crash of oil prices was seen in the last PML (N) government and during that period, it was the PTI that strongly raised voice for cutting the domestic oil prices. As Prime Minister Imran Khan has repeatedly spoken in recent days about checking the inflation, we understand this is a golden opportunity in the hands of incumbents to deliver on its promises by passing on the complete relief to the masses in the oil prices. This will naturally help the government to significantly bring down the inflation and cut the policy rate to trigger a massive economic activity in the country. Substantially cutting the oil prices will also help the government retain the confidence of the majority of the people in order to fully implement its reforms agenda.
