ISLAMABAD: Pakistan is set to announce key decisions this week on a fuel price hike and targeted subsidies for lower-income groups after consultations with provinces, as the Middle East crisis disrupts supply routes and puts fresh strain on the economy, senior officials with direct knowledge of the plan told Arab News.
The measures under consideration come as the conflict involving Iran, the United States and Israel has raised fears over energy supplies through the Strait of Hormuz, a critical shipping lane that carries about a fifth of global oil and gas flows, increasing pressure on import-dependent economies such as Pakistan.
Information Minister Attaullah Tarar confirmed that the government was weighing both a fuel price increase and targeted subsidies for lower-income groups.
“Federal government has already provided subsidy worth Rs130 billion ($466 million) to keep fuel prices unchanged. The provincial governments have suggested that instead of giving subsidy to all segments, government should hike petroleum prices and provide subsidy to deprived segment of the population who own motorcycles and rickshaws,” Tarar told Arab News, adding that provinces had agreed to share the burden of the targeted subsidy.
He said the government was expected to announce its decision by the end of this week.
Pakistan is among countries facing economic fallout from the conflict that began on Feb. 28. Iran has said it has moved to restrict passage for hostile shipping through the Strait of Hormuz, a chokepoint through which about 20 percent of global oil and gas supplies pass. The disruption has rattled global markets, prompting Pakistan to raise petrol and diesel prices by Rs55 ($0.20) per liter this month. It has since held off further increases, absorbing costs through subsidies to shield consumers from additional price shocks.
The government has introduced several other fuel conservation measures since the outbreak of the conflict. These include closing schools, shifting higher education classes online, implementing a four-day work week and cutting fuel quotas for government vehicles.
In recent weeks, the government has considered a range of fresh conservation options, including a nationwide two-day “smart lockdown.” However, the proposal was dropped after consultations with provinces and coalition partners.
“Two provinces opposed the lockdown proposal, refusing to take ownership of the proposal due to fear of political backlash, so the government dropped it and instead decided to consider alternative measures,” one official from the prime minister’s office who declined to be identified said.
He said the alternative measures included increasing petroleum prices to offset rising global oil costs.
“The second proposal is to offer targeted subsidies to owners of motorcycles, rickshaws, and small cars with engine capacities of up to 800cc,” the official said, adding that the owners of such cars would be registered through an app and given fuel at subsidized rates.
Officials have held several meetings to explore the use of technology to identify eligible beneficiaries, though technical challenges remain. The government may instead use the Benazir Income Support Programme, Pakistan’s flagship cash-transfer scheme, to provide direct assistance to affected households, according to an official from the finance ministry, who declined to be named.
Asked how the government would finance the subsidy while remaining under a $7 billion International Monetary Fund program approved in September 2024, the finance ministry official said provinces had agreed to share the burden.
“There is a general consensus among all provinces and the Federal government that subsidy should be targeted toward poor segment” he said.
He said a price increase was unavoidable, noting that fuel consumption in Pakistan had continued to rise despite the crisis, highlighting the need to prepare for potential supply shocks.
“The fuel consumption has increased by around 25 percent in the month of March despite the crisis. So, the government has no option but to raise fuel price to match the international price hike,” the finance ministry official added.
Pakistan’s Cabinet Committee to Monitor Petrol Prices met on Monday under Finance Minister Muhammad Aurangzeb to review petroleum stocks and developments in the energy sector.
According to a finance ministry statement, the current supply position remained stable, with diesel stocks providing approximately 23–24 days of cover, while petrol availability remained comfortable. The committee was informed that crude oil stocks provided around 11 days of cover, with additional cargoes in transit and committed volumes expected to sustain refinery operations and product availability through April.
Separately, Prime Minister Shehbaz Sharif chaired a meeting on Wednesday to review the economic and financial impact of the regional crisis, according to a statement from his office.
Sharif directed authorities to prepare a medium- to long-term strategy to manage the impact of rising global prices, while ensuring stability in the supply of essential goods and minimizing pressure on exports and economic growth.
