Despite the initial shock of the imposition of 29% in “reciprocal” tariffs on Pakistan by the Trump administration, the country has a chance at coming out on top—provided it takes advantage of a global decline in fuel prices.
The trade war triggered by Trump’s imposition of tariffs on dozens of countries has seen the Bloomberg Commodity Index decline by 8% in the last three sessions. Of this, crude oil prices (Brent) and Richards Bay Coal Future (April) are down by 14.3% to $64.2/bbl and 6.1% to $88.5/ton, respectively. For a country like Pakistan, whose larges import bill tends to be fuel, this is a boon, with the potential to facilitate the country’s macroeconomy, particularly the current account, inflation, and fiscal accounts.
“We have run sensitivity analysis of decline in oil prices by $10/barrel,” read a report issued by Topline Securities. “This brings down oil-related import bill (including RLNG) to the extent of $2-2.1 billion,” it said. Additionally, Pakistan stands to save $250-300 million annually on coal, LPG and Palm oil—provided the lower levels of prices persist.
A decline in oil prices can also have a trickledown effect on transportation, further reducing inflation if the benefit passed onto consumers.
Pakistan imports roughly 20 million tons of crude and refined oil annually. In fiscal year 2023-24, the country imported 9 million tons of crude and 10.3 million tons of refined oil, roughly 145 million barrels of equivalent oil. In light of this, every $1/barrel decline in oil prices reduces the country’s total import bill by $145-150 million, while a $10/barrel reduction yields savings of $1.5 billion on fuel.
RLNG Imports
Alongside oil imports, Pakistan also imports RLNG of $4 billion or 400 million MMBtus annually. RLNG prices are also linked to oil prices and change of $1/10 per barrel saves $60 million/$600 million of RLNG import annually, we estimate. ▪
Coal Imports
Pakistan also Imports $1-1.2 billion worth of coal annually. A decline of $10/ton in the fuel’s price reduces the import bill by $100 million. Jointly, the recent reductions in global prices of oil, coal and LNG can save Pakistan $2-2.1 billion in imports, equivalent to 3.5-4% of the country’s total imports.
Additionally, the country can save $150-200 million from other imports such as Palm oil ($3 billion total imports) and LPG ($1 billion total) due to their direct/indirect linkage with oil prices.
Inflation
Pakistan’s inflation is heavily reliant on changes in oil prices, due largely to its impact on transportation costs of essential commodities. A $10/barrel reduction in global prices, if passed onto consumers, can reduce consumer prices of petrol and diesel by up to Rs. 18/liter.
However, it remains unclear if Pakistanis will be able to benefit from any potential fuel price declines. Prime Minister Shehbaz Sharif has indicated that he will prefer to utilize the savings to reduce electricity bills while retaining fuel prices. Last month, the Government of Pakistan also increased the petroleum development levy by Rs. 10/liter, ensuring that a global decline in oil prices was not reflected in prices for average citizens.