EDITORIAL: With rising international oil prices—especially for supplies from the Middle East—the authorities in Pakistan are facing a painful, difficult and trying situation. They are said to be carefully weighing two options: increasing prices to absorb the growing cost, or rationing the fuel consumption. In reality, passing on the prices, albeit partially, is imperative, along with rationing. The government will be required to do both.
If the government continues with huge subsidies without settling payments to oil marketing companies, it could severely jeopardise supply stability, despite having adequate stocks and import orders. In the first week, the price differential claim (PDC) was of Rs23 billion; it increased to Rs48 billion the following week, and by the third week, the total toll must have crossed the Rs100 billion mark.
This cannot continue for long. The more the government delays the inevitable, the greater the impact will be on overall pricing and the economy. Therefore, contingency plans are needed if the Strait of Hormuz remains fully or partially closed and oil prices continue hovering around current levels.
The government cannot sit back and do nothing. The best option is to deregulate petroleum prices, as it has done in the case of HOBC and kerosene oil, which are used by the rich and poor, respectively. If any subsidy is to be provided, it should be direct. Merely increasing the petroleum levy on HOBC will not work, because its consumption last year was only 5 percent of the total petrol consumption. With higher HOBC prices, some HOBC users may shift to petrol, which would mean more subsidised consumption.
Raising HOBC prices alone may create a catchy headline, but it will not serve the purpose of compensating for the subsidy being offered to the majority of consumers. The demand for petrol and diesel is not being checked through pricing. There could be some impact from austerity measures, but these are not enough to prevent subsidies from growing to alarming levels.
More is needed. The government must pass on the impact to consumers and refrain from offering any further blanket subsidies. That is imperative for the macroeconomic stability of an economy that is extremely vulnerable to external price shocks, especially oil. The memory of the 2022 crisis is still fresh. The same mistake must not be repeated. The country does not have the fiscal space to provide blanket subsidies.
At the same time, working on consumption rationing is the right approach. Pakistan is fortunate to have secured oil supply through the Strait of Hormuz and other routes. However, the country does not have the economic buffers to withstand an import bill that may rise by 65 percent at current prices if consumption remains unchanged.
Thus, it is in the wider national interest to pass on the price impact to consumers and ration consumption in order to contain the growing import bill. The government is said to be considering plans to reduce the consumption of both two/three-wheelers and four-wheelers through CNIC-based measures. In our view, making CNICs the basis for allocation of quotas would be inappropriate as corporate and other juridical persons also own vehicles. It would be more manageable if it relates to vehicle registrations. There can be loopholes in each system but the latter is clearly less prone to abuse and less complicated to implement.
Last but not the least, it is important to note that Slovenia has become the first EU member state to implement fuel rationing to deal with the situation. Private motorists in Slovenia are said to be restricted to a particular amount of fuel per day. However, businesses and farmers have a more generous allowance of fuel. In Pakistan, we can draw a lesson or two without directly blindly copying or replicating the Slovenia’s fuel rationing strategy.
Copyright Business Recorder, 2026
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