ISLAMABAD – All eyes are on the government’s upcoming fuel price announcement for Pakistanis, with reports suggesting petrol and diesel prices could see significant cuts after a recent dip in global oil markets.
Estimates vary widely, with some projections pointing to relief of up to Rs20 per litre on petrol and Rs35 per litre on diesel. However, translating lower international oil prices into cheaper fuel at Pakistani pumps is far more complicated than it appears. Import premiums, freight costs, taxes, government levies, and Pakistan’s fuel pricing formula all play a crucial role in determining how much of the global decline actually reaches consumers.
The expected cut comes after a dramatic collapse in global oil prices following a breakthrough peace agreement between the United States and Iran. International markets reacted instantly, wiping billions from oil valuations and sending crude prices to their lowest levels in months.
But while consumers are celebrating the possibility of cheaper fuel, energy experts warn that the full benefits of the global oil crash may not reach Pakistani pumps anytime soon. The end of hostilities in the Middle East triggered a sharp sell-off in energy markets, removing a significant “war premium” that had pushed oil prices higher during months of geopolitical tension.
Pakistan, a country of around 250 million, heavily dependent on imported fuel, has seen development raise hopes of one of the largest fuel price reductions in recent years. The ex-refinery price of petrol has already fallen from around Rs245 per litre to nearly Rs225 per litre, creating room for substantial reductions in retail prices.
Many consumers assume that when oil prices fall internationally, petrol should immediately become cheaper at home. The reality is far more complicated. Pakistan’s fuel price is not determined solely by global crude oil benchmarks. Every litre sold at fuel stations includes freight costs, dealer commissions, oil company margins, taxes, and the Petroleum Development Levy (PDL).
Even more importantly, Pakistan relies on Gulf-region refined fuel pricing benchmarks rather than crude oil prices alone. This means petrol and diesel prices often react differently to international crude markets.
Although the US-Iran peace deal calmed markets with the reopening of Hormuz. Nearly 90 percent of Pakistan’s oil and LNG imports pass through this strategic waterway. During the conflict, shipping companies faced soaring insurance costs, tanker shortages, security threats, and logistical disruptions.
As a result, import premiums reportedly surged from a normal level of around $15 per barrel to nearly $35 per barrel. These premiums continue to inflate fuel costs despite the recent drop in oil prices.
Energy analysts believe the current price cut may only be the beginning. If import premiums fall back toward normal levels, Pakistan could witness an additional reduction in fuel costs over the coming months. A $10-per-barrel cut in import premiums translates into roughly Rs17.5 per litre in lower fuel costs. If premiums drop from $30 to $15 per barrel, the landed cost of fuel could decline by more than Rs26 per litre.
In other words, today’s expected relief could merely be the first chapter of a much larger price correction. However, there is another force working against consumers: the federal budget.
The government plans to collect approximately Rs1.727 trillion through the Petroleum Development Levy during FY27, significantly higher than the previous year’s target. To achieve this goal, authorities may have little choice but to maintain elevated levy rates on fuel sales. As of June, the levy alone contributes around Rs80 per litre to petrol prices.
This means that even if international prices continue falling, the government may absorb part of the benefit through taxes rather than passing the entire reduction on to consumers.
In light of these calculations, petrol falling below Rs300 per litre remains a bit hard. Even with an ex-refinery price near Rs225, the addition of levies, freight charges, dealer commissions, and oil company margins pushes retail prices well above that threshold.
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