Fuel price hike hits Pakistan: Global factors and domestic implications

Islamabad has raised fuel prices for the next fortnight, effective January 16, in light of global fluctuations in petroleum prices.

According to a press release, the Oil and Gas Regulatory Authority (OGRA) increased the price of High-Speed Diesel (HSD) and Petrol by 2.61 and 3.47 rupees, respectively. This hike is much lower than earlier estimates, which predicted that fuel prices would rise by six to seven rupees.

The price of petrol for the next fortnight is 256.13 rupees, while HSD’s price now rests at 260.95 rupees. This is not a result of an increase in petroleum levies as they have remained unchanged at 76 rupees per litre on both petrol and HSD.

While the government does not charge its standard general sales tax of 18 percent on petroleum sales, there exists a flat 60 rupees per litre petroleum development levy. Furthermore, Islamabad also charges a customs duty of 16 rupees per litre on petrol and HSD.

Customers have started growing weary of frequent price hikes as their spending power erodes with each hike. This is because a rise in the price of fuel has an inflationary impact on the economy. Since businesses also use fuel to transport their goods, they have to pass on the extra cost to consumers to protect their profit margins.

However, since Pakistan is a net importer of Petroleum, there is little Islamabad can do to protect the economy from a potential rise in inflation with an increase in fuel prices. The hike in petrol prices can be partially attributed to United States President-elect Donald Trump, who has threatened to strangle Russia’s petroleum exports by sanctioning the country.

According to Reuters, these sanctions have caused Russia to face higher costs on sea-borne oil exports. Experts claim that a fall in supply from the third-largest oil producer, Russia, is bound to result in an explosion of the commodity’s prices. The Russian oil industry currently makes up 12 percent of global crude oil production.

Since Pakistan does not produce enough petroleum to become self-sustainable, the economy is often left at the whim of fluctuations in global oil prices. In the past five years, Brent prices have skyrocketed by approximately 37 percent to settle near $82. However, with Trump’s threat against Russia and other global factors, Brent prices have surged by about 6 percent in the last five days alone.