TO strategically capitalize on the declining trend of international petroleum prices, Pakistan must implement a comprehensive and data-driven policy framework that not only delivers immediate economic relief but also strengthens long-term energy security, operational efficiency and sustainability.
Given the recurring pressures on the domestic economy, such a strategy becomes advantageous and imperative for ensuring macroeconomic stability and structural resilience.
A crucial initial step involves passing on the benefit of reduced global oil prices to consumers through a gradual and sustained reduction in domestic fuel prices.
This policy would help curb inflation, ease the burden on the transport and production sectors as well as stimulate broader economic activity.
Complementary to this measure is the establishment of a Fuel Price Stabilization Fund—modelled after successful frameworks in other economies—to buffer the country against future oil price shocks and ensure pricing consistency.
Such a mechanism would serve as an institutional safeguard, protecting both consumers and the fiscal system from abrupt market fluctuations.
In parallel, Pakistan must accelerate the development of strategic petroleum reserves (SPR) to insulate the economy from supply disruptions.
The International Energy Agency (IEA) recommends maintaining reserves equivalent to at least 90 days of national consumption; Pakistan, however, falls short of this benchmark.
To meet this target, a significant investment in storage infrastructure is essential.
Estimates indicate that constructing facilities to store approximately 2 million tons of crude oil would require an investment of nearly Rs 354 billion.
These reserves could be accommodated via underground facilities or leased tankers, depending on logistical and financial feasibility.
Simultaneously, there is a pressing need to align petroleum procurement with intelligent currency management.
Pre-booking oil and LNG imports at favourable rates can lock in strategic savings and protect against future price volatility.
Coordinated with the State Bank’s exchange rate strategies, such planning could support the rupee and stabilize the country’s fragile external account.
To complement a long-term energy strategy, Pakistan must urgently enhance its capabilities in the petroleum value chain—particularly in capacity building, upstream exploration, and the development of manufacturing infrastructure for the Naphtha cracking industry.
Strengthening this industrial base can dramatically reduce reliance on costly imports, saving billions in foreign exchange annually, while opening export avenues to regional markets such as Sri Lanka and Afghanistan.
However, such progress requires a departure from politically expedient, short-term decisions in favour of bold, forward-looking reforms.
Building indigenous capacities in this critical sector is not only a strategic economic imperative but also a pathway toward energy self-sufficiency, regional competitiveness, and sustainable industrialization.
On the fiscal side, rationalizing fuel taxation is another key component.
A temporary reduction in petroleum levies and sales tax would provide direct relief to both the industrial and consumer sectors.
More sustainably, the implementation of a dynamic taxation mechanism—responsive to international oil price trends—could ensure fiscal responsibility without stifling economic momentum.
This approach balances short-term relief with long-term fiscal prudence.
The savings generated through lower oil import bills should be redirected toward strategic reforms and capital development.
A substantial portion can be allocated to infrastructure projects critical to economic expansion.
Additionally, the energy sector demands urgent structural reform, particularly in managing the circular debt crisis, which had ballooned to Rs 4.7 trillion by December 2024, with Rs 2.4 trillion concentrated within the power sector.
Allocating resources to address these systemic inefficiencies would significantly improve service delivery and investor confidence.
Concurrently, targeted subsidies for low-income households and public transportation can promote equitable economic participation and social stability.
Investment in renewable energy must be prioritized to meet Pakistan’s goal of generating 60% of its electricity from renewables by 2030.
Achieving this target requires strong collaboration between public and private sectors in solar, wind, and hydel energy.
Incentivizing electric vehicle (EV) adoption and distributed energy generation will further reduce reliance on imported fossil fuels and provide environmental and economic benefits.
Reforming power sector contracts is another key step.
Renegotiated agreements with 29 Independent Power Producers (IPPs) and government plants could yield potential savings of Rs 3.498 trillion.
These savings must translate into lower electricity tariffs to support industrial competitiveness and ease household financial pressure.
Energy diplomacy should also be revitalized.
Pakistan and Iran have formed a joint task force to deepen economic cooperation, which can expand into energy trade and infrastructure.
Strengthening regional ties with Iran and Central Asian states will diversify energy sources and enhance geopolitical stability.
To reinforce self-reliance, Pakistan must reinvest savings from falling global oil prices into its energy sector.
This ensures windfall profits benefit strategic development rather than unproductive or politically driven spending.
Upgrading outdated refinery infrastructure—currently operating below global standards—is vital.
With a refining capacity of 450,000 barrels per day, partnerships and foreign investment, such as Saudi Arabia’s $10 billion Gwadar refinery, can fast-track modernization.
Boosting domestic oil and gas production is equally urgent.
As of September 2024, output was just 68,000 barrels per day.
Exploration in underexplored southern regions, improved geological surveys, and transparent licensing will help unlock reserves and reduce imports.
Finally, stalled refinery projects at Gwadar must be revived.
International and regional instability had delayed agreements with Saudi Arabia and the UAE.
Renewed talks and addressing Balochistan’s security challenges through inclusive socio-political efforts can attract sustained investment and technology.
—The writer is President Islamabad Chamber of Commerce and Industry.
