US-Iran tensions

The government has indicated that it may revive the fuel subsidy mechanism within days if renewed tensions in the Middle East continue to push global oil prices higher. While acknowledging the financial strain on consumers, officials also reaffirmed their commitment to petroleum price deregulation, saying the policy remains essential under Pakistan’s ongoing IMF programme. Subsidy Could Return “In a Few Days” Petroleum Minister Ali Pervaiz Malik said the government was prepared to reintroduce a targeted fuel subsidy mechanism if the current geopolitical situation did not improve soon. Speaking to journalists after attending a meeting of the Senate Standing Committee on Petroleum, Malik recalled that the prime minister had previously allocated Rs130 billion in fuel subsidies before provincial governments joined the initiative to help cushion the impact of rising fuel prices. He said the government fully understood the challenges facing ordinary Pakistanis but stressed that lasting relief would depend on an easing of global oil prices once tensions in the Middle East subsided. Fiscal Constraints Limit Government Options Malik said Pakistan’s commitments under the International Monetary Fund (IMF) programme had significantly reduced the government’s fiscal flexibility. He explained that recovering the actual cost of petroleum products from consumers remained the only sustainable option, warning that artificially suppressing prices would simply transfer the financial burden elsewhere. Defending the newly introduced daily petroleum pricing mechanism, the minister said it was designed to improve transparency and reduce sudden price shocks by gradually reflecting changes in international oil markets. He added that the Oil and Gas Regulatory Authority (Ogra) had published its pricing methodology to ensure greater public transparency. Senate Committee Debates Daily Pricing System During the Senate Standing Committee meeting chaired by Senator Umer Farooq, lawmakers expressed mixed views over the new daily pricing mechanism. While Senator Amir Chishti supported the policy, Senator Saifullah Abro criticised it, describing it as “slow poison” for consumers. Responding to concerns about replacing the previous fortnightly pricing system, Malik said the government had depoliticised fuel pricing by empowering Ogra to independently determine petroleum prices based on international market movements. Ogra Chairman Nabeel Awan explained that prices are calculated using a seven-day rolling average of Platts international benchmarks, allowing fluctuations to be absorbed more gradually and reducing volatility caused by geopolitical events such as the ongoing US-Iran conflict. Dealers Raise Operational Concerns Members of the Senate committee also questioned the heavy tax burden on petroleum products. Representatives of the Petroleum Dealers Association told lawmakers that frequent daily price revisions had created operational difficulties for fuel stations across the country. The committee directed Ogra to engage with petroleum dealers and other stakeholders to develop practical solutions that minimise disruption while maintaining transparency. Government Reviews Petroleum Pricing Reforms Separately, a government committee headed by Petroleum Minister Ali Pervaiz Malik reviewed the implementation of the daily pricing system. According to an official statement, the committee appreciated the pricing framework and its objective of improving transparency while limiting price volatility. Consulting firm KPMG also presented a comparative study of petroleum pricing and taxation models adopted by regional countries. The minister instructed oil marketing companies (OMCs) to accelerate the end-to-end digitisation of Pakistan’s petroleum supply chain in accordance with directives previously issued by the prime minister. Petroleum Sector Reforms Continue The committee also reviewed the moratorium on new oil marketing companies and discussed its implications for competition and future investment. Officials agreed that the Inland Freight Equalisation Margin (IFEM) mechanism requires a comprehensive review, particularly if petroleum price deregulation moves forward. The issue of a windfall tax also came under discussion, with the Finance Division, Federal Board of Revenue (FBR), and Petroleum Division directed to submit a joint report at the next meeting. The government said consultations would continue as it develops a broader roadmap for petroleum sector reforms focused on transparency, competition and consumer protection. Conclusion While the government remains committed to petroleum price deregulation, it has left the door open for the temporary revival of the fuel subsidy mechanism if Middle East tensions continue to drive global oil prices higher. However, with Pakistan operating under IMF fiscal constraints, any subsidy is likely to be targeted and implemented with provincial support rather than through broad-based price controls.