Govt increases petrol price by Rs1.08, HSD by 51 paisas per litre for Sept 2

Read:Govt increases petrol price by 77 paisas, decreases HSD by Rs1.03 per litre for Sept 1On July 17, the government announced a new pricing mechanism under which petroleum product prices would be reviewed and notified on a daily basis, replacing the weekly pricing mechanism, as renewed tensions between the United States and Iran continued to drive volatility in global oil markets and raise concerns over fuel supplies.

2024-25, petroleum products constitute one of the country's largest import categories, making the economy highly vulnerable to changes in global crude oil prices. Domestic refineries satisfy only part of national demand, while the remainder is met through imports of crude oil and refined petroleum products.

Consequently, every increase in international oil prices raises Pakistan's import bill, pressures foreign exchange reserves, and contributes to inflation. Pakistan previously exercised significant government control over petroleum pricing through subsidies and administrative interventions. While these measures temporarily protected consumers, they imposed substantial fiscal costs.

During periods of elevated global oil prices, successive governments delayed passing price increases to consumers, creating financial pressures for oil marketing companies, refineries, and the national budget. Large fuel subsidies widened fiscal deficits, increased public borrowing, and weakened macroeconomic stability.

Global geopolitical developments continue to pose significant risks. International oil prices are influenced by decisions taken by OPEC+, conflicts in the Middle East, sanctions on oil-producing nations, and disruptions in critical shipping routes such as the Strait of Hormuz and the Red Sea.

Any interruption in these supply chains can immediately increase crude oil prices and freight costs. Since Pakistan imports the majority of its petroleum requirements, these developments quickly translate into higher domestic fuel prices. Oil prices jumped about 4% to a ‌one-week high on Tuesday as aresumption in fightingbetweenthe USand Iran renewed fears of supply disruptions fromthe Middle East.

Brent futures rose $3.44, or 3.8%, to $93.93 a barrel at 1:10 pm EDT (1710 GMT), while US West Texas Intermediate crude rose $3.72, or 4.3%, to $89.48. The US launched new air strikes on Iranian targets on Tuesday, ​quashing hopes that an exchange of fire last weekend might not presage a wider renewal of hostilities.

Oil prices ⁠had already risen after that first exchange of direct attacks since July and after reports of two tankers being hit leaving the Strait, ​the global oil supply waterway that Iran has effectively closed to shipping. The fresh hostilities "raised concerns about prolonged disruptions to energy flows through the Strait of Hormuz," Saxo Bank analyst Ole Hansen said.