The Middle East conflict has turned Pakistan’s petroleum market into another source of distress for a population already struggling with inflation, falling purchasing power and stagnant incomes. Petrol, which was selling at around Rs266 per litre in the first week of March, subsequently climbed sharply, touching a peak of Rs458.41 on April 3 before retreating as international oil prices eased. By September 11, however, petrol was again being sold at Rs370.80 per litre, while high-speed diesel had reached Rs398.04.
The scale of the shock becomes clearer when the starting point is considered. Petrol rose from about Rs266 in early March to more than Rs458 in April — an increase of over Rs192, or roughly 72 per cent, at the peak. Although prices subsequently fell, the latest rate remains about Rs105 per litre, or nearly 40 per cent, higher than the pre-war level. The diesel story has been even more dramatic: HSD rose from Rs281 after the outbreak of hostilities to a peak of Rs520.35 on April 3.
The government has attributed the increases to the international oil shock caused by the war and disruptions around the Strait of Hormuz. There is little doubt that Pakistan, as a heavily oil-importing country, is vulnerable to such disruptions. The renewed fighting has sharply constrained shipping through the strategic waterway. Before the latest crisis, more than 140-150 oil tankers could pass through the Strait daily; during the hostilities, traffic was reportedly reduced to a fraction of that level.
Against this background, the government’s decision to move from weekly or fortnightly petroleum-price revisions to daily adjustments from July 18 has some economic logic. International crude prices can change dramatically within hours when geopolitical developments occur. The new mechanism is intended to pass those changes through more quickly to consumers and ensure that domestic prices reflect movements in the international market with less delay.
Yet there is a legitimate question over whether consumers should bear every international fluctuation immediately. Critics point out that petroleum companies purchase substantial quantities in bulk rather than buying each day’s requirement at that day’s international price. Daily retail adjustments, therefore, do not necessarily represent the actual cost of every litre already sitting in storage. Moreover, frequent changes make it extraordinarily difficult for households and businesses to plan their expenditures and manage their monthly budgets.
India also faces the same international oil market and the same geopolitical risks, yet it has shielded consumers considerably more effectively. Petrol in New Delhi is currently around Rs102.12 per litre in Indian currency, and has remained unchanged since May despite crude oil again crossing $100 a barrel. Bangladesh has gone even further in holding the line. Its government kept petrol at Tk140 per litre throughout September, with diesel at Tk115, despite continuing volatility in international oil markets. The rates have remained unchanged since May.
The contrast does raise an important policy question: why must Pakistani consumers absorb such a large proportion of the international shock when neighbouring governments are prepared to cushion their populations?
The answer lies partly in Pakistan’s fiscal predicament. Petroleum prices are not determined by the international price of crude alone. The government adds customs duties, petroleum development levy, climate support levy, freight-related charges, margins and commissions. The result is a substantial tax burden at the pump, meaning that the price paid by consumers reflects not only the international cost of oil but also a significant domestic fiscal component.
The petroleum levy has become a major source of government revenue. Pakistan collected a record Rs1.567 trillion from the levy in 2025-26, 29 per cent more than the previous year’s Rs1.22 trillion. The target for 2026-27 is around Rs1.676 trillion, while the IMF’s programme has incorporated an even higher petroleum-levy trajectory.
The government, therefore, faces a difficult dilemma: reducing the levy would provide immediate relief to consumers but create a fiscal gap at a time when the state is already struggling to mobilise sufficient revenues. Yet continuing to extract more revenue from fuel also has a serious economic cost. It raises transportation expenses, production costs and the prices of virtually every commodity. The petroleum levy is particularly attractive to the government because it is collected automatically at petrol stations rather than through the cumbersome machinery of the Federal Board of Revenue.
The World Bank estimated Pakistan’s poverty rate at 42.4 per cent in FY2025 under its lower-middle-income poverty line of $3.65 a day, with an estimated 1.9 million additional people falling into poverty during the year. Higher petrol prices mean more expensive buses, vans, rickshaws and goods transport. They increase the cost of bringing vegetables, milk, meat and other perishables from farms to cities. Food inflation was already a major concern, and higher transportation costs inevitably feed into retail prices.
Productive sectors are also complaining that daily price changes make it almost impossible to forecast input costs. An entrepreneur contemplating an investment cannot confidently calculate next month’s transportation, distribution or production expenses when fuel prices can change every day. For manufacturers, farmers, retailers and transport operators, uncertainty itself becomes an additional cost, discouraging investment and making long-term business planning increasingly difficult.
The Jamaat-i-Islami has tapped into the growing resentment by launching a street movement against the petroleum levy. The government and JI have agreed to form committees to consider reducing the levy, but the party has said its protests will continue. It has now announced a September 20 march on Islamabad and is demanding withdrawal of the Rs114-per-litre petrol burden. The government should not dismiss this merely as political agitation. It reflects genuine economic pain among households and businesses already struggling with high living costs.
Analysts have pointed out that before asking citizens to pay more, the state should demonstrate that it has exhausted every possibility of reducing its own expenditure. The cost of running the civil government crossed Rs1 trillion in 2025-26, rising 16 per cent despite claims of austerity. Free or heavily subsidised petrol and electricity for senior bureaucrats, political office-holders and privileged institutions should be abolished. Official vehicles, unnecessary foreign trips, oversized government establishments, ceremonial expenditures and other non-essential spending need to be cut drastically.
Pakistan cannot indefinitely finance fiscal adjustment by squeezing ordinary citizens. Nor can it expect industry and agriculture to become competitive while repeatedly increasing the cost of energy and transportation. A government that asks people to accept higher taxes and fuel prices must also demonstrate that it is willing to impose discipline on its own spending and eliminate privileges that are difficult to justify in the midst of an economic crisis.
Petrol cannot be treated merely as another source of revenue. It is the lifeblood of the economy. When its price rises excessively, the shock travels through every road, factory, farm, classroom and household. In a country where nearly half the population is already vulnerable to poverty, continuing to rely on ever-higher fuel taxation is not a sustainable economic policy. The government must cut waste, reform taxation, protect productive sectors and provide relief before the petrol crisis becomes an even deeper crisis of livelihoods.