Prices for petroleum products have been raised for the next two weeks by up to Rs7.95 per litre. Islamabad has attributed the spike in prices to rising oil prices in the international market.

 

According to reports, escalating tensions between Iran and Israel have led to a jump in oil prices. Data from the New York Mercantile Exchange (NYMEX) suggests that Brent Crude Oil Futures have shot up by 8.26 percent in the last five days. Analysts fear a second wave of attacks from Israel, which could result in the destruction of Iran’s oil facilities, resulting in subdued production levels.

 

Reports indicate that Iran pumps out 3.3 million barrels per day, exporting over 60 percent of its total production. Moreover, the war could spread to the Strait of Hormuz, which witnesses the transport of 20 percent of the world's oil supply, including exports from non-belligerent countries such as Kuwait, Iraq, and the United Arab Emirates (UAE).

 

The aforementioned developments pushed the ex-depot price of petrol by Rs4.8 per litre in the domestic market. Moreover, high-speed diesel (HSD) prices witnessed a more liberal increase, rising by a liberal Rs7.95 per litre. 

 

The ex-depot price of petrol will sit at Rs258.43 for the upcoming fortnight after the increase. Similarly, HSD prices have shot up too, coming to settle at Rs262.59 per litre.

 

Aside from the base price of the fuel itself, Islamabad charges approximately Rs78 per litre petroleum development levy (PDL) on high octane and petrol. However, the PDL on HSD sits at a slightly lower Rs77.01 per litre.

 

The federal government extracts an additional Rs16 per litre from the sale of petroleum products by levying customs duty on petrol and HSD. Put together, the PDL and customs duty raise the federal government’s revenues to Rs94 per litre from petrol and HSD sales. 

 

A rise in HSD rates could adversely impact the transport sector, given its reliance on the fuel. The increase in prices is also likely to stifle economic activity across multiple sectors.

 

For instance, the transportation sector has diesel as a primary input and thus requires vast quantities of the commodity. With a rise in HSD prices, these businesses could witness a rise in operational costs and, ultimately, a drop in profit margins.

 

As per analysts, bus fares tend to be sticky when diesel rates drop after an increase. As such, future drops in the price of diesel might not result in a proportional decrease in fares.