Pakistan's fuel crisis is often framed as a question of global oil prices and subsidies, but in reality it is more consequential as a question of strategic foresight, structural fragility and weak governance. This results in internal inflation, external deficits, currency depreciation and social stress with almost no absorptive capacity.
Earlier this month, in a single tightening cycle, petrol hit Rs 450 and diesel Rs 500 per litre, headlines blamed the Middle East crisis, but in reality it is a predictable consequence of deferred investment, policy fragmentation and institutional inertia.
Pakistan consumes approximately 500,000 barrels of oil per day, while the country's domestic production ranges between 70,000 and 80,000. We import 20% crude oil and 80% refined oil, and that 80% of supply depends on imports denominated in US dollars. And every time the rupee depreciates even slightly, this directly translates into additional costs of billions of dollars.
Previously, when crude oil prices rose above $110 per barrel, the effect was predictable and aggravated, resulting in domestic prices increasing in a single cycle by 40% to 50%. Although unprecedented, it is the end result of a system unable to absorb shocks, reflecting weak governance and underutilized infrastructure; Therefore, fiscal designs consider energy as a revenue-generating instrument rather than a strategic asset.
Scale always strengthens resilience, as India processes 5.5 million barrels per day in its 23 refineries, while China exceeds 12 million barrels per day in 30 facilities. The UK is refining 1.1 million barrels a day despite declining domestic production. Pakistan operates five refineries with a combined capacity of 450,000 barrels, but refines only 60,000 barrels per day.
In 2007, the government announced an expansion plan to upgrade these refineries and their storage capacity, but even after 15 years, it remains largely unimplemented. There is a lot of movement in the documents and meetings in official circles, but in reality progress is minimal. Our five refineries (Parco, Cnergyico, NRL, ARL and PRL) do not lack refining capacity but they do lack modern refining capacity, since four out of five refineries are very basic (hydroskimming) and low complexity. Structural failure is therefore compounded by investment delays; Furthermore, these refineries are underutilized because the configurations do not align with domestic demand for gasoline and diesel.
This underutilization leads to an import of 80 to 85 percent of refined fuel at a premium cost of $10 to $15 per barrel, thus further inflating annual oil bills to $10 to $20 billion, with crude oil alone exceeding $5 billion in peak years. This operational and structural weakness exacerbates macroeconomic stress, thereby depleting foreign exchange reserves, worsening current account deficits and unfortunately, due to this, circular debt now runs into trillions of rupees. Subsidies briefly soften crises, but postpone inevitable corrections, concentrating shocks and aggravating fiscal risk.
Then there is the so-called oil tax (PL), integrated into this dynamic and converted into a de facto tax collection instrument. For the government, it is easy to collect, avoids provincial revenue sharing, and faces little resistance compared to taxing entrenched interests. Through this tax, the government collected Rs 1.22 trillion (about $4.7 billion) in the fiscal year 2024-25. The PL represents between 35% and 40% of retail gasoline prices.
In the current fiscal year 2025-26, the government has already collected more than Rs 1 trillion through oil tax and will surpass the target in this regard. This is approximately more than 100 billion dollars a month in tax collection without any effort to document and structure the informal economy.
Ordinary citizens, especially workers and the lower middle class, are struggling in their daily lives due to this double burden of energy cost and real taxes embedded in transportation, goods and services. Gaps in supervision further corrode potential revenues: oil marketing companies sometimes fail to remit the full PL collections, while subsidies exceeding Rs 100 billion provide negligible relief.
Pakistan should prioritize building modern, export-oriented oil refineries with strong jet fuel production (100,000 bpd) to offset crude oil imports with dollar-generating exports.
As global fuel demand evolves, aviation fuel remains structurally resilient as there is no threat from electric vehicles in the medium term. Modern oil refineries require capital of between $5 billion and $10 billion and will take 4 to 5 years to develop. Instead of relying on FDI, CPEC or Saudi support (as has been the case, it is ideal, but has set back the progress of this initiative for more than two decades).
Under the SIFC, a sovereign financing model with provincial participation (a five per cent annual share of its NFC allotment), 2 per cent strategic foreign reserves and a 20 per cent allocation of a share of oil tax revenue can anchor this initiative and will be a considerable step towards our sustainability and self-sufficiency in fuel consumption and production. National strategic assets are always developed without depending on foreign financing or investment. Our nuclear program is a clear example of this.
This initiative will not only strengthen our foreign exchange reserves and safeguard our energy security, but will also help us move from a consumption-driven policy to a long-term national resilience strategy based on investment. Pakistan should have prioritized this initiative long before proliferating its domestic market with oil marketing companies.
These are retail and marketing segments with low barriers to capital flows that produce visible growth while stagnating primary resilience: this expanded consumer access but critically restricted production capacity and shock absorption.
India set up the Jamnagar refinery in 2000 with a capacity of 1,000,000 bpd. During the Ukrainian war it benefited from cheap crude oil from Russia, refined at the Jamnagar refinery and exported refined gasoline and jet fuel to Europe. This initiative under their economic reforms of the 1990s earned them significant levels of foreign exchange.
For Pakistan, the arguments for structural reform are financially compelling and viable. A greenfield 200,000-barrel-per-day refinery, costing $5 billion, will reduce imports and generate $1.2 to $1.5 billion in annual savings, recouping the investment in six to seven years.
Even a 15% global price drop extends the return on investment to only eight or nine years; A 20% depreciation of the rupee raises the savings to $1.7 billion, shortening the payback period to five or six years. The sensitivity analysis confirms that investing in resilience is not a luxury but a fiscal and strategic responsibility.
The implications are far-reaching and go beyond energy, as I highlighted in my previous article on reforms in Pakistan Railways. Railroads handle less than 5% of freight and more than 90% is carried by road. This dependency increases fuel consumption, import bills and economic inefficiency.
Even promising EV adoption policies remain largely symbolic. Without a billion-dollar investment in charging infrastructure, network modernization and tariff rationalization, electric vehicles in Pakistan cannot significantly reduce fuel demand.
A five-year synchronized investment package could produce returns of 12% to 15% through import substitution and foreign exchange savings, but without systemic alignment, these initiatives remain guesswork.
Pakistan's frequent fuel crises have similar recurrences: reactive and politically driven energy policy intensifies instability. We are a firefighting nation and addressing symptoms such as price adjustments, subsidies and tax collection will never allow us to focus on the causes.
Decades of deferred investments, governance failures, bureaucratic fragmentation and electoral short-termism for political gain have left our energy sector far from being a platform for progress and development and becoming a cyclical vulnerability.
To emerge from this daytime round we need decisive leadership, we must stabilize the Pakistani rupee, segregate energy policy from political rhetoric, streamline regulatory approvals and fully commit to medium-term infrastructure expansion. We can further harmonize institutional credibility through the SIFC platform along with policy continuity and strategic vision. These are prerequisites for starting or attracting investments in any sector.
Paying for expensive gasoline for our vehicles is not a coincidence. It is due to a structural inevitability facilitated and coordinated by a system that conflates revenue extraction with energy supply. Developed and civilized countries absorb global fuel crises with their strong governance and infrastructure mechanism. Our system transfers them directly to citizens. Unless we reform and prioritize resilience over relief, every international fuel crisis will translate into domestic hardship for us. Energy reforms are no longer optional but a test of leadership, as they are the only solution for energy sovereignty.
The author is a political economist, public policy commentator, and advocate for principled leadership and regional cooperation throughout the Muslim world.
Disclaimer: The views expressed in this article are those of the writer and do not necessarily reflect the editorial policy of Geo.tv.
Originally published in The News
