The cost of oil

The ongoing conflict between US/Israel and Iran is having negative repercussions on a scale that is unprecedented in a regional war, prompting many an analyst to declare it a world war. And the negative impact on the global economy continues to rise.

The oil supply disruption is causing fuel shortages the world over raising petrol and jet fuel prices that are impacting directly on the pocketbook of the common man in nearly every country of the world.

Fertiliser shortages are expected to impact on farm output that will raise food prices further; and there are acute shortages of minerals – Sulphur (used to produce sulphuric acid used for the manufacture of phosphate fertilizers, chemicals, and industrial products), helium (used for scientific research, medical technology, high-tech manufacturing, space exploration, and national defence) and naphtha (used for producing plastics and synthetic materials, gasoline blending to boost octane and industrial solvent for paints, coating and cleaning agents).

The impact of the rise in fuel prices differs from country to country – a rise that is affecting the price of transport of goods from farms or indeed ports to market as well as air travel.

However, while there are reports of rising prices of essentials in Iran yet the price of oil in the country remains the lowest in the world – petrol and kerosene at 15,000 riyals per litre and diesel at 3000 riyals per litre. Two observations are relevant. First, there is a dual riyal-dollar exchange rate in Iran – the official rate and the market rate that is being successfully manipulated as part of US strategy to cripple the Iranian economy as admitted by the US Treasury Secretary Scott Bessent.

The market rate does not affect the oil and products being sold in the Iranian market. Be that as it may, any country in a state of war will be subjected to shortages and high prices of essentials; however, all inflation projections are from Western sources and not from multilaterals or Iranian officials which notes inflation at 68.9 percent with food inflation exceeding 115 percent compared to the previous year.

It is unclear how much yuan/crypto Iran has collected as tax for allowing tankers and cargo to pass the Strait of Hormuz and therefore the market price of rial to the dollar may increasingly have less relevance.

Israeli economy in contrast is heavily dependent on the US and therefore the Israeli shekel in the last 30 days reached a high of 0.3449 and a 30-day low of 0.32834. Gas prices in Israel are one of the highest in the world – at about 2.86 dollars per litre.

There are discussions that the Iranian people are used to suffering, given the fact that they have been sanctioned for 47 years which clearly the US general population is not as is apparent from criticism of President Trump’s decision to attack Iran with Israel.

The public and Western media focus in the US is on the rise in the domestic price of petrol which is on average between 1.08 dollars to 1.26 dollars per litre or approximately 351 rupees per litre (4 to nearly 6 dollars per gallon) with traditionally one of the lowest taxes on gas – currently at 18.4 cents per gallon for gasoline and 24.4 cents for diesel – though President Trump has proposed suspending the federal tax as of this month; however, that would require congressional approval.

President Trump has repeatedly pointed to the rise in US earnings as a consequence of a surge in exports due to the ongoing conflict to approximately 4.8 to 6 million barrels a day which generated around 18 to 23 billion dollars in April. Two further observations are relevant.

First, unlike in Pakistan not only is the price of oil and products deregulated in the US, but different states impose different rates of taxes on gas and diesel which average around 32.61 cents per gallon for petrol and 34.76 cents per gallon for diesel.

And, secondly, even though the US is the world’s highest oil producer at 12 million bpd outpacing Saudi Arabia and Russia with the primary driver of growth attributed to fracking in the Permian Basin (located in West Texas and New Mexico) yet several states import oil, particularly California that imports around 60 percent of its requirements due to declining state production.

Irrespective of the recent rise in US gas prices they still compare favourably to those prevalent in Pakistan today — 414.78 rupees per litre for petrol (petroleum levy 117.41 rupees per litre) and 414.58 rupees per litre on diesel (petroleum levy at 42.60 rupees per litre).

Pakistan is not considering a suspension of the levy, and instead it was raised this week past by 13.9 rupees per litre to meet the revenue targets agreed with the International Monetary Fund (IMF) under the ongoing programme with the July-April 683 billion-rupee shortfall in the tax collection targets.

China with oil reserves of up to six months and its ships being allowed passage through the Strait of Hormuz has no supply shortages with reports suggesting that in spite of the conflict China imported 90 percent of its pre-conflict oil imports.

However, prices in China too are on the rise. In early May, China’s petrol price was approximately 1.1 dollar per litre (roughly 7 to 8 renmibi per litre or 307 Pakistan rupees per litre) for standard – lower than in the US and much lower than in Pakistan.

India imposes state taxes on petrol as well (like the US) and on 13 May one litre price of petrol varied from roughly 94.77 rupees per litre in Delhi to 103.9 litres in Mumbai, 104.99 rupees per litre in Kolkata and 100.79 rupees per litre in Chennai.

And petrol price in India on average was from 1.10 dollars per litre to 1.17 dollars per litre (roughly under 310 Pakistan rupees).

Unlike other countries, particularly in Europe, Pakistan has been implementing an extremely effective foreign policy, whereby it is mediating between the US and Iran.

And has successfully negotiated with Iran and on 25 April opened six road routes to Iran: (i) Gwadar to Gabd, (ii) Port Qasim to Lyari to Ormara to Pasni to Gabd, (iii) Port Qasim to Khuzdar to Dalbadin to Taftan, (iv) Gwadar to Turbat to Hoshab to Panjgur to Nagg to Besima to Khuzdar, (v) Quetta, to Dalbadin to Nokundi to Taftan and (vi) Gwadar to Lyari to Khuzdar to Quetta to Dalbadin to Nokundi to Taftan. Iran has allowed 2 LNG cargoes from Qatar as well as other shipments to Pakistan.

The price of oil and gas in Pakistan is still one of the highest and the reason is the continued fragility of the economy with the economic team leaders continuing to focus on incurring more loans, bilateral and multilateral, rather than proactively reducing current expenditure that would ease the pressure on borrowing (domestically and internationally); and/or to negotiate defence agreements with support that may be required to remain battle ready in the event of another war – a situation that is likely given Israel’s goal to extract territory from other countries including Saudi Arabia and Turkey to achieve its long term objective of a Greater Israel.

Copyright Business Recorder, 2026