Pakistan’s soaring inflation has led to a surge in Iranian oil imports as Pakistanis search for cheaper fuel options. The popularity of Iranian oil has negatively impacted local refineries, which are now expected to decline in sales during the second quarter of 2023.
This development comes at a time when local refineries are already facing a reduction in demand as firms across several sectors shut down due to a slowing economy, and people turn to public transport because of increasing costs. The country’s oil sales dropped 46% year-on-year in April, declining about 8.8 million barrels, while fuel consumption plunged 83% to just 70,000 metric tons.
Soaring inflation, a weakening rupee, and a shortage of foreign exchange reserves have prompted small traders and individuals with a business network in Iran to purchase Iranian oil at heavily discounted rates. A significant price difference between Pakistani and Iranian barrels, coupled with the latter’s widespread availability in the country’s southern areas, is harming refiners’ sales.
The average retail price of diesel has been Rs. 288 per liter in Pakistan in recent months, while Iranian diesel has been selling as low as Rs. 230 per liter, leading to decent profits for private dealers. Between 35,000-60,000 barrels per day of diesel could have flowed into the domestic market through southern sea and land transportation routes under the radar in recent months, and it’s possible that the volumes could rise, according to a senior executive at Attock Refinery and a middle distillate distribution management source at Pak Arab Refinery (PARCO).
Import of Iranian oil has been banned in Pakistan since the United States imposed sanctions on the neighboring country’s petroleum and petrochemical trade in 2013. However, refinery sources and analysts at Insight Securities said authorities were turning a blind eye to the imports amid declining foreign reserves. Many private dealers with no fear of reprisal have been offering smuggled Iranian products to oil marketing companies at discounted rates minus a petroleum development levy.
Besides denting local refiners’ sales, the import of Iranian oil has also caused billions of dollars in losses for the government, which relies heavily on the GST and petroleum development levy from fuel sales to generate revenue. The smuggling of Iranian oil has “never been on this huge and unparalleled scale,” warns the Attock Refinery executive, and if it continues, then local refineries are at risk of shutting down. The government needs to take action to address this growing problem, either by increasing foreign reserves or by finding alternative sources of affordable fuel to protect the economy and the livelihoods of its citizens.
What are your views on this situation? Share with us in the comments.
Buying cheap Iranian oil is disloyalty to country. We must cut out our irrational expenses, such as buying bikes for children as young as eight and ten and giving them authority to own the roads, for avoiding effects of inflation.
P.S. Every Pakistani is in some way trying to fight for their interests and ignoring country’s the only difference from government is that these Pakistanis has not yet got a chance to rule Pakistan.