ON 6 March, Pakistan’s senior economic leadership held a press briefing to announce an unprecedented increase in fuel prices.
Deputy Prime Minister Ishaq Dar linked the decision to rising regional tensions, including Iranian strikes and the closure of the Strait of Hormuz. Officials described the situation as an exceptional global crisis, while emphasizing that precautionary steps had already been taken to manage volatility and safeguard national fuel reserves. Following this broader context, the ministers announced a Rs55 per litre increase in both petrol and diesel. The briefing concluded offering limited room for immediate scrutiny. Effective from midnight on March 7, the adjustment raised petrol prices from Rs266.17 to Rs321.17 and diesel to Rs335.86, reflecting an increase of around 17 percent.
Although the government linked the decision to the Gulf crisis and disruptions in global energy supply, a closer review of fiscal trends, policy choices, and market dynamics suggests that underlying domestic structural pressures played a more decisive role than the conflict itself. Notably, officials did not address the Federal Board of Revenue’s widening gap in collections. From July to February in FY2025–26, revenues reached Rs8.121 trillion against a target of Rs8.550 trillion, reflecting a significant shortfall and continuing a pattern from the previous year that led to a downward revision of targets by the IMF. Against this backdrop, the petroleum levy on petrol had already been raised to Rs82 per litre—well before the Iran crisis—as a measure to offset revenue pressures.
In parallel, the IMF had already been pressing Pakistan to adjust fuel prices, well before tensions in Iran escalated. It emphasized avoiding subsidies and meeting the annual petroleum levy target of Rs1.468 trillion. By December 2025, over Rs822 billion—more than 60 percent of the target—had been collected, underscoring the need to sustain high per-litre levies. In this light, the price hike appears less a wartime response and more a built-in fiscal necessity. The IMF had also instructed Pakistan in June 2025 to set aside Rs400 billion in contingency reserves to cushion against external shocks. Although the government complied, it chose not to deploy these funds when the Gulf crisis unfolded. Instead, it opted to raise prices, leaving the reserve untouched while consumers absorbed the full impact at the pump.
On January 16, petrol stood at Rs253.17 per litre and diesel at Rs257.08, with prices largely unchanged through late February. On March 1, shortly after Operation Epic Fury began, the government announced a modest increase—Rs8 for petrol and Rs5.16 for diesel. However, analysts had already anticipated a Rs4.50 to Rs7 rise for that cycle based on existing trends, suggesting the adjustment aligned with routine market movements rather than sudden external shocks. The sharp Rs55 increase on March 6 cannot be fully attributed to global price movements. The rise in import premiums—from $5 to $17 per barrel—explains roughly Rs15 to Rs20 per litre on future shipments, leaving Rs35 to Rs40 driven by pre-existing domestic fiscal pressures. Overall, petrol prices rose by Rs68 between mid-January and March 7, with only a limited share linked to the Gulf crisis.
Another key aspect missing from the government’s account is the timing of fuel procurement. Much of Pakistan’s existing stock had been imported roughly 24 days before the March 6 decision, at pre-war prices. Express Tribune noted that two meetings were held on March 6 to consider limiting windfall gains for oil marketing companies, no mechanism was put in place. Consequently, the Rs55 increase applied across all available stock, including fuel acquired at earlier, lower prices. The structure of the price adjustment also reveals a political dimension. According to reporting by the Express Tribune, the increase in petrol prices exceeded the actual rise in international costs because the government sought to subsidies diesel, which is consumed primarily by agriculture, freight transport, and public transport. Petrol, by contrast, is used predominantly by low-income motorcycle commuters. By extracting more from petrol users than the war-adjusted cost required, the government effectively shifted the burden onto lower-income households to maintain relatively lower diesel prices for other constituencies.
The fuel price hike drove up production and transport costs, pushing wholesale prices of essentials like flour, vegetables, and meat higher. Transport fares increased, and retailers struggled to sell staples at official rates. Industry warned of added pressure on manufacturing and agriculture, while Pakistan faces its highest poverty in 11 years and unemployment in 21 years. Public frustration was evident, with traders urging the government to cut its own spending rather than raise fuel prices. Business groups criticized officials’ “luxurious lifestyle” and demanded a reversal of the hike. Karyana Associations highlighted the sharp rise in wholesale food prices, stressing the strain on retailers and calling on the government to shield local businesses and consumers from global price shocks.
While the regional conflict and the temporary closure of the Strait of Hormuz did exert upward pressure on global energy markets, these factors account for only a portion of the increase. The majority reflects structural mismanagement, delayed reforms, and political considerations. The government’s decision to frame the hike as a consequence of external shocks obscures the underlying issues: persistent revenue underperformance, reliance on petroleum levies to fill fiscal gaps, and the non-utilisation of contingency reserves designed for precisely such moments. The result is a policy choice presented as an inevitability, with the burden falling disproportionately on lower-income households who rely on petrol for daily mobility.
— The writer is an educator, based in Sindh.