ISLAMABAD: Nearly one-fifth of the world’s oil supply passes through the Strait of Hormuz, making Pakistan highly vulnerable to global energy shocks, a new study by the Pakistan Institute of Development Economics (PIDE) warned on Thursday.
The research, titled “Pakistan’s Exposure to a Strait of Hormuz Shock: Fuel Pricing, Inflation, and External Vulnerability,” highlighted how even minor disruptions in the strategic Gulf waterway could trigger sharp increases in domestic fuel prices, accelerate inflation, and destabilise Pakistan’s external accounts.
“Pakistan imports more than 22 percent of its energy requirements, and any disruption at Hormuz can quickly reverberate through the economy,” the report’s authors, Ahsan ul Haq Satti and Shahzada M Naeem Nawaz, said.
“Our findings showed that the impact extends far beyond crude oil prices, affecting freight costs, insurance premiums, exchange rates, and ultimately, consumer prices.”
The study emphasised that domestic fuel prices are shaped by a complex web of factors. Freight and shipping costs rise during crises, war-risk insurance premiums increase, and depreciation of the rupee magnifies import costs. Taxes and retail margins further amplify price shocks, creating a multi-layered effect on consumers.
Using a nonlinear scenario-based model, PIDE simulated three levels of disruption: mild, stress, and severe.
In a mild shock scenario, inflation could rise to nearly 8.8 percent within six months. Under stress conditions, inflation could breach 10.4 percent, posing macroeconomic challenges, while a severe disruption could push it beyond 12 percent, with high second-round effects on food and transport prices.
The study also warned of significant external sector risks. Monthly petroleum import bills could rise by up to USD 384 million, and Pakistan’s current account balance could swing from surplus to deficit within months.
In severe scenarios, the annual external impact could exceed USD 4.6 billion, creating a feedback loop of a weakening rupee, higher import costs, and intensified inflationary pressures. High-speed diesel (HSD), the study noted, is a particularly potent driver of inflation due to its central role in transport, logistics, agriculture, and food supply chains.
Diesel price shocks can therefore amplify second-round inflation effects, disproportionately affecting food prices.
PIDE recommended a series of urgent policy measures to mitigate these risks. These include implementing a transparent, rules-based fuel pricing mechanism, prioritising diesel monitoring, strengthening coordination between the State Bank of Pakistan, Ministry of Finance, and Petroleum Division, and providing targeted support for critical supply chains and public transport.
The institute also called for proactive planning of fuel financing to shield the external account and long-term structural reforms to reduce diesel dependence and enhance energy resilience.
“Pakistan’s exposure to global energy shocks is deeper and more complex than commonly perceived,” the study concluded.
“A disruption in the Strait of Hormuz is not merely an external event – it is a potential domestic macroeconomic crisis in waiting. Fuel pricing, inflation, and external stability are tightly interconnected and must be managed together.”
Copyright Business Recorder, 2026
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