Potential fuel price hike: Economic challenges ahead for Pakistan

Estimates for the fuel prices for the next fortnight are in, and both business owners and consumers may be disappointed by the announcement once again. The prices of petrol, kerosene, and High-Speed Diesel (HSD) are all estimated to increase by approximately five to six rupees per litre, according to Dawn.

Sources reveal that the ex-depot price of petrol is expected to rise by five to six rupees. HSD and kerosene might see more conservative rises in prices of just two and three rupees per litre, respectively.

These are estimations, and the actual revision of prices will be carried out on January 15.

Expectations surrounding the surge in fuel prices can safely be attributed to the higher prices of fuel in the international market. The reasoning behind the rise in fuel prices is that United States President-elect Donald Trump threatened to slap sanctions on Russian oil and energy exports.

According to Statista, Russia is the third largest producer of oil worldwide. The Russian oil industry alone accounts for over 12 percent of global crude oil production. With Donald Trump seemingly on course to strangle Russia’s oil exports, net importers of petroleum, such as Pakistan, are projected to face large financial losses.

Historically, the economy has witnessed a large balance of trade deficits because of the large volume of petroleum products on the import bill. Experts predict that the rise in international crude oil prices will negatively impact Pakistan’s trade balance.

Since Donald Trump’s threat, the market summary revealed that Brent prices had gone up by one to two dollars per barrel. The only silver lining is that import premiums have not been changed, and the exchange rate remains stable.

If Islamabad had decided to tack on to the already extortionately high 76 rupees per litre petroleum levy, consumers would suffer even more. Furthermore, had the rupee faced depreciation, it would have been financially challenging for consumers to afford the new petrol prices.

However, experts predict that the expected price hike will significantly hurt businesses, and a prime example is the transport sector. HSD is a primary input in business operations, and with HSD prices rising, profit margins are expected to grow slimmer.

The hike in petrol prices is also expected to erode the purchasing power of regular consumers as an overwhelming majority of the population consumes petrol. The worst part is that Brent prices have gone up by approximately six percent in the past five days, with experts predicting that the upward trend will continue.