Over the past year, authorities have repeatedly voiced the threat to Pakistan’s economy from smuggled oil from Iran, with oil dealers warning that up to 35 percent of diesel sold in Pakistan actually reached the country illegally.
In a recent letter, the Oil Companies Advisory Council (OCAC) noted the cross-border smuggling was limited to Balochistan in the past but has now spread nationwide. Taking cognizance of this, authorities have directed security forces to clamp down on fuel smuggling to curb the loss of tax revenue that is hampering efforts for economic revival.
According to the OCAC, the sale of oil products dropped by 46 percent to 8.8 million barrels this April compared to last year, with smuggled fuel making up the shortfall. A report by S&P Global Commodity Insights found Iranian fuel was roughly Rs. 53/liter cheaper than diesel imported from the Gulf, allowing higher profits for private dealers. The Oil and Gas Regulatory Authority (OGRA), meanwhile, has said around 4,000 tons of fuel is smuggled into Pakistan per day, causing total revenue loss of around Rs. 10.2 billion per month, while the Public Procurement and Disposal of Public Assets Authority (PPDA) has warned Iranian fuel smuggling is hurting the oil industry.
The massive smuggling of various goods into Pakistan also raises questions over the state’s writ, with authorities either unwilling or unable to take action. The incumbent government of Prime Minister Shehbaz Sharif appears to have recognized how much this impacts the economy, as well as the country’s refineries, whose production has reduced due to a decline in consumption. The real question is why the situation was allowed to get this bad: a joint study by economists of Harvard University and the Ministry of Commerce in 2020 found that smuggled goods in Pakistan accounted for $3.3 billion in losses to revenue. This includes fuel, cellphones, tires and auto parts. If the government doesn’t exert its writ—and soon—its aims of reviving the economy and generating much-needed revenue is unlikely to realize.