Finance minister warns Middle East conflict could push domestic fuel prices higher

Finance Minister Muhammad Aurangzeb told a Senate committee on Thursday that rising global oil prices due to tensions in the Middle East could put pressure on petroleum product prices in Pakistan. He made these remarks while briefing the Senate Standing Committee on Finance and Revenue, chaired by Senator Saleem Mandviwalla, as members reviewed the economic impact of regional instability on Pakistan’s energy supplies.

Later, the Ministry of Finance issued a statement clarifying that the minister did not announce any decision regarding an increase in petroleum prices and that reports suggesting otherwise were incorrect.

During the briefing, the finance minister informed the committee that international crude oil prices were rising and the government was monitoring developments in the region closely. He said prolonged conflict in the Middle East could affect Pakistan’s inflation outlook, external financing position, current account balance and remittance inflows, although the country is not directly involved in the conflict.

The committee was informed that the government has introduced austerity and energy conservation measures to create fiscal space to absorb potential increases in global oil prices.

Aurangzeb said a high-level committee formed by the prime minister is holding daily meetings to assess the situation and recommend policy responses to ensure continuity of fuel supplies.

Petroleum Minister Ali Pervaiz Malik informed the committee that Qatar had declared force majeure due to the conflict, resulting in a suspension of LNG shipments to Pakistan. He said that an LNG cargo that previously cost around $25 million is now being quoted at nearly $100 million in the international market.

The committee was also told that Pakistan currently operates five oil refineries, most of which are outdated. Malik said Saudi Arabia was supplying crude oil to Pakistan at discounted rates, but shipping costs had increased sharply from about $700,000 to nearly $7 million per cargo.

Malik said the recent Rs55 per litre increase in petrol and diesel prices was implemented to ensure uninterrupted fuel imports. He explained that oil cargoes typically take around 20 days to reach Pakistan and that without adjusting prices oil marketing companies could have stopped imports due to higher procurement costs.

“If prices had not been increased immediately, companies would not have imported fuel and the country could have faced shortages,” he told the committee.

He added that oil prices are determined based on average Platts benchmark prices and that the pricing mechanism remains unchanged.

The minister also said the Strait of Hormuz had become congested due to the conflict, forcing vessels to take longer routes while insurance costs and premiums had increased significantly.

Members of the committee raised concerns about increases in petroleum prices on existing stocks and asked the government to explain the factors behind such adjustments.

During the meeting, Senator Farooq H. Naek criticised the increase in fuel prices and said the burden was being shifted onto the public.

Officials also informed the committee that LPG imports from Iran are continuing and have increased compared with earlier levels, while there is currently no proposal to raise domestic LNG prices.

The committee was further told that gas supplies are being prioritised for the fertiliser sector.

Aurangzeb and Malik said the prime minister had directed that efforts should be made to avoid placing additional burden on the public.

The government will review international oil prices before announcing the next revision in petroleum product prices on Friday, they added.