KARACHI: Pakistan’s fragile economic recovery could face renewed inflationary pressure if global oil prices surge to $130 per barrel amid the escalating Middle East conflict, economists and industry stakeholders warned this week.

The warning comes after crude prices briefly spiked above $110 per barrel following hostilities involving the United States, Israel and Iran, raising fears of disruptions to energy shipments through the Strait of Hormuz, a strategic waterway that carries roughly one-fifth of the world’s oil supply.

Although prices have since retreated from their recent highs, analysts say continued volatility could quickly translate into higher fuel costs in Pakistan, which imports most of its energy needs.

On Friday, Pakistan raised consumer prices for diesel and petrol about 20 percent, citing the higher oil prices caused by the Iran war. Last week, the central bank said headline inflation accelerated to 7 percent in February from 5.8 percent in January, while core inflation reached about 7.6 percent.

It said inflation could remain above 7 percent through the rest of the fiscal year ​ending in June and ​into the next fiscal ⁠year, though improved food supply and better agricultural prospects may partly offset pressure from higher energy prices.

“If global oil reaches $130 per barrel, petrol in Pakistan could approach Rs392 ($1.4) per liter with inflation rising by 7.11 percent,” Karachi-based tax and corporate advisory firm Tola Associates said in a note to its clients.

The projection highlights the vulnerability of Pakistan’s import-dependent energy sector at a time when the country is still recovering from a prolonged economic crisis marked by high inflation, currency depreciation and rising fuel costs.

Pakistan imported petroleum products worth about $16 billion last year, accounting for the largest share of the country’s $58.4 billion import bill, according to official data.

Ashfaq Tola, chairman of Tola Associates and a former tax adviser to several Pakistani governments, said his firm had modeled how different global oil price scenarios could affect domestic fuel prices and inflation.

“If oil is priced at $88 per barrel, we have an indicative price of Rs313 ($1.1) per liter. If it reaches $130, its inflationary impact on the overall economy will be 7.11 percent,” Tola said.

He noted that global oil prices had recently eased from their peak and expressed hope markets would stabilize.

“The oil prices are settled today. We are seeing prices at $88. The prices will reach the same level at $65-$66. The economy will recover.”

However, Tola said Pakistan’s recent decision to raise fuel prices by Rs55 ($.20) per liter had come too quickly given the country’s fuel reserves.

“I don’t see any rationale for this knee-jerk Rs55 per liter increment in the prices of fuel given the fuel stock we had in reserves. You should have waited,” he asked the government.

Pakistan’s petroleum ministry spokesperson Zafar Abbas did not respond to requests for comment. Nazir Abbas Zaidi, secretary general of the Oil Companies Advisory Council (OCAC), also declined to comment.

Finance adviser Khurram Schehzad said on social media platform X that oil prices had already started declining.

“Oil continues plummeting,” the official said, noting Brent crude had fallen 16 percent to about $83 per barrel while US benchmark WTI declined 17 percent to around $78.

LPG PRICE HIKE

Even as crude prices fluctuate, rising energy costs are already beginning to ripple through Pakistan’s retail markets, particularly in liquefied petroleum gas (LPG), which is widely used in households, restaurants and vehicles across the country, especially in areas without piped natural gas.

Khubaib Sabir, an LPG retailer in Karachi’s Keamari neighborhood, said prices had climbed sharply since the conflict intensified.

“Before this war started it stood at Rs310 ($1.1) per kilogram. Now the LPG prices have increased by Rs40 to Rs350 ($1.3),” he told Arab News while filling gas cylinders for customers.

Sabir said the price of a 42-kilogram LPG cylinder had risen by Rs400 to Rs14,600 ($52) since Monday.

“It would cross the Rs400 ($1.4) limit if the war persisted,” said the father of six.

Pakistan consumes roughly 8,000 tons of LPG daily, according to industry estimates, of which about 2,200 tons are produced locally while the rest is imported.

Irfan Khokhar, chairman of the LPG Industries Association of Pakistan, said panic buying had increased demand but insisted supplies remained adequate.

“Two ships namely Aries and Atlantic carrying 11,000 tons and 12,000 tons LPG consignments have already anchored at Port Qasim,” Khokhar told Arab News, referring to Pakistan’s second-largest seaport. “Gas will be available in the market and there will be no shortage in Pakistan.”

He added that additional cargoes were expected before the Eid Al-Fitr holiday.

“Two more LPG consignments are expected to arrive in Pakistan before Eid-ul-Fitr, 3,700 tons via a ship named Ullswater and 3,500 tons via MD23,” he said.

Despite the supply outlook, Khokhar said LPG prices had climbed due to uncertainty in the Middle East and rising freight costs linked to disruptions near the Strait of Hormuz.

“The gas mafia has been selling LPG at Rs350 to Rs450 ($1.6) per kilogram, using the energy crisis and the sharp rise in global crude oil prices as justification,” he lamented.

ECONOMIC RISKS

Economists say Pakistan’s heavy reliance on imported fuel means geopolitical tensions often translate quickly into domestic economic pressure, pushing up transportation costs, food prices and broader inflation.

“If you are talking about oil and LPG prices, it’s anybody’s guess. It’s all dependent on this conflict,” said energy expert Muhammad Saad Ali, head of research at Lucky Investments Limited.

Ali said sustained oil prices above $110 per barrel could trigger economic stress globally.

“That’s the kind of level that can force recession in these developed economies. And you saw that yesterday it was going up to $120,” he said.

Ali noted that Pakistan still has alternative options to manage gas supply disruptions.

“It’s not a shortage like it was after the Ukrainian war,” he said, adding that Islamabad could secure additional cargoes through spot purchases or suppliers such as the State Oil Company of the Republic of Azerbaijan (SOCAR).