Govt revises diesel pricing mechanism amid supply disruptions

The Pakistan government has revised the high-speed diesel (HSD) pricing mechanism amid supply disruptions caused by the Middle East conflict, increased import premiums, and raised shipping risks through the Strait of Hormuz, adding pressure on overall fuel import costs.

According to available documents, the federal cabinet considered the summary submitted by the Petroleum Division and approved the proposal contained in Para 3 under Case No. 264/Rule-19/2026/327.

The newly approved mechanism has set a structured formula for HSD pricing. It states that “the average of last week’s Dubai Crude Oil Price (PCAAT00), published in Platts, will be used as the base price.”

In addition, “Aramco’s crude oil premium for Arab Extra Light for Asia… (April 2026 value is $3.00/bbl)” will be incorporated for Gulf-origin crude, including supplies from Fujairah and Yanbu.

To control volatility, the government has imposed a cap and floor on HSD crack spreads. The document notes that “HSD crack of $41.89/bbl will be used as ceiling/upper cap and $11.33/bbl as floor value,” ensuring a historic weighted average crack of $6.16/bbl.

The mechanism also allows additional premiums for non-Gulf imports. “For import of crude from outside the Gulf region, an additional premium up to $10/bbl… will be reimbursed through IFEM,” it states.

Recognizing wartime logistics pressures, the government has approved freight adjustments. “Allowance of $8.0/bbl will be granted for crude vessel imports from the Gulf region,” while “an additional freight up to $5.00/bbl” will be allowed for non-Gulf imports, subject to NCMC approval.

The policy ostensibly ensures full cost recovery for Pakistan State Oil (PSO), stating that “applicable custom duty and incidentals paid by PSO on import of HSD will be added to ensure recovery of PSO’s import cost through consumers' price.”

Importantly, the government has imposed a major restriction on market players. The letter clearly states: “No import of HSD by OMCs, other than PSO, shall be allowed,” adding that any exception will require approval from the National Coordination and Management Council (NCMC).

To manage financial impact, any pricing differential arising from the shift in mechanism “on projected consumption of 5 KT/day… shall be reimbursed through IFEM.”

The document reveals that for the week starting April 11, 2026, “full PSO’s cost differential has been worked out to be Rs11.8 billion.” Refineries have agreed to contribute, as “refineries have committed to surrender Rs7.1 billion in IFEM for reimbursement to PSO,” with the remaining amount to be settled through the normal IFEM mechanism.

The government has also clarified that “there will be no retrospective changes in the prices, pricing formula or taxation mechanism,” ensuring policy consistency.

While the mechanism is initially planned for three months, the document notes flexibility: “if the geopolitical situation improves and international prices register a quick decline, the government may reconsider the mechanism before the timeline.”

Other petroleum products, including Motor Spirit (MS), Superior Kerosene Oil (SKO), and Light Diesel Oil (LDO), will continue to be priced under the existing weekly pricing mechanism approved on March 6, 2026.

Additionally, existing parameters such as exchange rate adjustment, RRD, RON, and HSD sulphur penalties will remain unchanged.

Under the revised authority structure, OGRA will continue to notify price changes within a band of Rs3 per litre. However, “if weekly increase/decrease is beyond Rs3/litre, Petroleum Division in consultation with the Prime Minister’s Office will decide the revision.”

The Petroleum Division has directed OGRA to “take appropriate action for immediate implementation of the above decisions under intimation to all concerned,” signaling urgency amid volatile global energy markets.

Besides, the federal government has decided that no import of High-Speed Diesel (HSD) by oil marketing companies (OMCs), other than Pakistan State Oil (PSO), will be permitted, in what appears to be a decisive attempt to centralize fuel procurement and manage the country’s rising external account pressures.

“No import of HSD by OMCs, other than PSO, shall be allowed. If there is any requirement, specific approval of National Coordination and Management Council (NCMC) shall be sought,” said official documents.

According to the decision, any additional requirement for HSD imports by other OMCs will now require specific approval from the National Coordination and Management Council (NCMC), effectively placing strict oversight on diesel import volumes and limiting market participation.

It is pertinent to mention that the US–Iran tensions have influenced global fuel prices primarily through their impact on the Strait of Hormuz, one of the world’s most critical oil shipping chokepoints through which a substantial share of global crude and LNG trade passes. Any escalation between Washington and Tehran immediately heightens concerns over potential supply disruptions, raising the geopolitical “risk premium” in international oil markets and pushing up Brent and other benchmark prices, even in the absence of actual supply cuts.

As Pakistan relies heavily on imported petroleum products with prices linked to global crude benchmarks, this volatility is quickly transmitted into domestic fuel costs. Rising freight charges, higher insurance premiums, and uncertainty over Middle Eastern shipping routes further amplify import expenses, making Pakistan particularly sensitive to US–Iran geopolitical developments compared to many other economies.