A comparison of the existing price of petrol between the US and Pakistan shows that in the US the national average rate as per the US Energy Information Administration on 2 October was 4.35 dollars per gallon (1.08 dollars per litre), higher/lower in some states relative to others, while in Pakistan the rate was 398.96 rupees per litre (1.44 dollars) this Friday past throughout the country.
While the price of petroleum and products is determined by market conditions in the US it is regulated in Pakistan. On 17 July 2026 Pakistani public was informed that the prices of oil and products would be set on a daily basis, instead of weekly, subsequent to the renewed escalation of conflict between Iran and the US.
Petroleum Minister Ali Pervaiz Malik clarified the decision during a press conference he held the same day: “The federal cabinet and the prime minister decided that, without exposing the state to any risk, the responsibility would be assigned to Oil and Gas Regulatory Authority (OGRA) to determine petroleum prices daily in line with international market trends.
Ogra will not only publish on its website the Platts benchmark rates, which are used globally to determine petroleum prices, but will also disclose the components that make up the final price consumers pay at petrol pumps.
Ogra has been directed to publish all these details so that people know why these prices are unavoidable.”
The mechanics of the daily price setting in Pakistan, it was revealed, would be through the use of a 7-day rolling average of international PLATTs benchmark (a weekly price set may therefore perhaps make more sense especially as the US futures market as opposed to the rate at which it is available at the pump is being successfully manipulated by the US administration), and relevant import costs (rising due to higher shipping costs as well as a change in the rupee-dollar parity though this has been remarkably constant). Not mentioned by Malik is the petroleum levy that is applicable, 80 rupees per litre at present that compares rather unfavourably with the US federal tax; and considering that provinces cannot levy a tax on petroleum and products (as US states do) it appears to be doubly unfair that the government does not share collections under this head by placing it under other taxes instead of under sales tax, which is part of the divisible pool under the National Finance Commission award.
And finally, the long-standing flawed policy to ensure the same price for the product throughout the country, irrespective of cost differentials associated with transport, the inbuilt cross-subsidy in pricing the product through what is defined as Inland Freight Equalization Margin (IFEM).
Malik further stated that the daily price change would not require Prime Minister’s approval, in a failed attempt to absolve him and the 50 plus strong cabinet, of responsibility, adding that OGRA will publish daily rates and calculation online and law enforcement agencies would crack down on hoarding and profiteering. The objective Malik said would be to enhance transparency in the pricing mechanism without exposing the state to financial risks.
The formula for price setting in Pakistan is, with minor fluctuations, as follows: (i) ex-refinery/import price which includes the price at which the fuel is secured, international price as well as shipping costs, as well as costs associated with refining in-country (with the general perception that infrastructure of refineries is obsolete relative to other countries) accounts for 71.8 percent of the total pump price; (ii) IFEM (2.08 percent) a rate that is akin to the inexplicable attempt to equalize the price of electricity through-out the country which is a major reason for the need to extend subsidies of nearly 600 billion rupees at the taxpayers’ expense this year and another 252 billion rupees earmarked for containment of circular debt; (iii) Oil Marketing Companies and Dealer’s margins (at two percent each) or a total of 4 percent; and (iv) petroleum levy at 20.3 percent of the pump price and carbon levy (agreed under the Resilience and Sustainability Facility of the IMF) at 1.3 percent.
On the other hand, the US has surplus fuel after it began extracting shale oil and gas from dense rock formations (with current stockpiles of 83.7 billion barrels), however it is light sweet crude, low in sulphur, that is used in cars (petrol) but cannot be refined to produce diesel (used by trucks that transport goods across country) or jet fuel (used in planes).
In spite of a surplus in the US the price of light crude is rising as there is a dearth of light crude in Europe, due to the economically flawed decision to sanction cheap Russian oil post-22 February 2022 invasion of Ukraine that led to heavy reliance on energy imports from the US.
Today Europe offers a much higher price for US petrol relative to what is on offer in the US market which explains the rise in pump price in the US.
The US imported sour crude, with a high sulphur content, through a pipeline from Canada, and refined it in the US though due to the ongoing trade war Canada is diversifying exports to other countries, including Europe and China.
The US has secured Venezuelan sour crude after capturing Maduro though infrastructure limitations and security factors constrain output. Reports suggest that 17 Venezuelan oil fields need to be developed from scratch that would require years, not months.
There is a disconnect in the US in its refining capacity for light crude as only 30 percent of all US refineries can refine light sweet crude while 70 percent are dedicated to refine mainly imported sour crude.
The US-Israel attack on Iran on 28 February 2026 raised the futures price of sweet crude though the actual pump price is reflecting the actual supply on the ground. The rise in the sour oil price due to supply shortages linked to the ongoing Middle East conflict compelled President Trump to draw down on sour crude reserve stockpiles.
The Strategic Petroleum Reserves stashed in underground tanks in Louisiana and Texas have the capacity of 714 million barrels but at present the reserves are down to 285.4 million barrels which equal about 14 days of oil given the daily consumption of 20.1 million barrels a day or 42 days of 2026 daily US import levels of 6.8 million barrels per day. This drawdown led President Trump to successfully threaten European countries to draw down on their reserves recently.
The US sets petroleum prices according to the following formula: (i) refining costs constitute 14 to 25 percent), (ii) distribution and marketing (11 percent), federal taxes (18.4 cents per gallon equals four litres) – about 50 rupees per 4 litres or 12.5 rupees per litre) with states imposing different taxes.
To conclude, if the incomes differential between Pakistanis and Americans is taken into account there is a need to take mitigating measures for the Pakistani poor with over 44.7 percent living below the poverty line estimated by the World Bank.
The ongoing subsidy scheme for the vulnerable amounts to only 75 billion rupees for three months — or a mere 4.4 percent of the petroleum levy budgeted for the current year (at 1676.509 million rupees), which the International Monetary Fund stated in its 7 October press release that “any future fuel support—should oil prices surprise on the upside—should be limited, time-bound, targeted using established social assistance programs, and accommodated within the FY27 budget envelope.”
Copyright Business Recorder, 2026