Pakistan Moves to Stabilize Fuel Supplies Amid Strait of Hormuz Disruption
In response to significant trade slowdowns following the closure of the Strait of Hormuz, Pakistan is preparing to implement a series of critical measures aimed at ensuring stable fuel supplies across the nation. The federal cabinet's Economic Coordination Committee (ECC) is scheduled to review comprehensive proposals that include shifting from fortnightly to weekly petroleum price revisions, providing compensation to oil marketing companies (OMCs) for escalated insurance and import expenses, and introducing fuel conservation strategies such as mandatory work-from-home policies for both public and private sectors.
Immediate Actions and Stock Levels
State-run Pakistan State Oil (PSO), with official government approval, has already initiated two import tenders each for petrol and diesel through alternative routes that bypass the Strait of Hormuz. This proactive step comes despite current fuel stocks being at some of the highest levels recorded in the country. Specifically, petrol and diesel inventories each exceed 500,000 tonnes, sufficient to cover approximately 26 and 25 days of consumption, respectively. Additionally, Pakistan has formally requested Saudi Arabia to facilitate oil deliveries via the Red Sea to further diversify supply channels and mitigate risks.
High-Level Coordination and Proposed Measures
All provincial chief secretaries have been directed to participate in a meeting of the newly established 18-member cabinet committee on petroleum prices, set for Thursday. Officials emphasized that this gathering will deliberate on mandatory work-from-home arrangements wherever feasible, alongside other potential conservation initiatives coordinated with provincial authorities. The primary objective is to preemptively address supply vulnerabilities, particularly for diesel, which relies heavily on long-term shipments from Kuwait that traditionally transit through the now-closed Strait of Hormuz.
Escalating Costs and Compensation Plans
The closure has triggered a cascade of financial challenges for the oil industry. Reports indicate that more than 20 percent of global oil cargoes are currently stranded in the Strait, leading to a severe shortage of available ships for diesel transport. Consequently, insurance premiums for oil shipments have skyrocketed from approximately $30,000 to $400,000 per vessel, with additional import surcharges imposed on petroleum products. Freight expenses have also surged dramatically, escalating from $900,000 to over $4 million per ship.
Officials warned that these exponential cost increases cannot be absorbed by OMCs and refineries without adequate support. "Unless properly compensated, OMCs would have sufficient grounds to avoid imports and declare force majeure," they stated. To counteract this, a summary presented to the ECC advocates for compensating OMCs for these extra costs and transitioning to weekly price adjustments. This strategy aims to align fuel prices more closely with real-time market conditions while preventing financial strain on companies.
Price Gaps and Supply Management
One official highlighted that the price disparity has already widened to Rs45-50 for diesel and around Rs25-26 for petrol within the first week of the crisis, with projections suggesting further increases over the next fortnight. This situation necessitates immediate intervention to 'nip it in the bud' and maintain economic stability. In light of dealer complaints regarding limited supplies, the Oil and Gas Regulatory Authority (Ogra) and OMCs have decided to allocate petrol and diesel to dealers based on their eight-month sales histories. Despite these adjustments, senior government authorities confirm that there is currently no shortage of petrol or diesel anywhere in Pakistan.
Public Reassurance and Official Statements
Ogra has issued a firm reassurance to the public, stating, "There is no shortage of petroleum products. Citizens are advised not to pay attention to rumours and to rely only on information issued through official channels." The authority further explained that temporarily regulating supplies to retail outlets based on historical sales patterns is a standard supply management practice designed to uphold stability within the distribution network. These coordinated efforts underscore Pakistan's commitment to navigating the complexities of the global oil market disruption while safeguarding domestic energy security.
