Pakistan’s Oil Supply Chain Faces FX Constraints Amid Rising Global Prices

Islamabad – Pakistan’s petroleum supply chain is facing increasing pressure from foreign exchange constraints, despite improved stock levels of oil products. This challenge arises from soaring global prices, increased insurance costs, import premiums, and freight charges, impacting the ability of oil marketing companies (OMCs) to maintain adequate supplies.

Rising Costs and FX Constraints

The issue was formally raised at a meeting of a special cabinet committee tasked with monitoring petroleum prices, chaired by Finance Minister Muhammad Aurangzeb. OMCs have reported that their credit limits in Pakistani currency have remained unchanged, while their foreign exchange requirements have more than doubled since the start of the US-Israel war on Iran.

These credit limits were established when global petrol and diesel prices were around $70 and $90 per barrel, respectively. Currently, prices have surged to over $132 and $190 per barrel. Insurance costs, import premiums, and freight charges have increased due to longer shipping routes, with the import premium rising to above $20 per barrel from less than $5-6.

commercial banks are not fully covering the foreign exchange needs of oil importers. Led by Pakistan State Oil (PSO), the industry has requested intervention from the committee and the State Bank of Pakistan (SBP) to either enhance credit limits or facilitate alternative arrangements for foreign exchange availability.

Current Stock Levels and Supply Status

Despite these challenges, both petrol and diesel stocks have improved in recent days. Petrol stocks currently provide more than 29 days of coverage, while diesel stocks offer 26 days of coverage. Crude oil stocks have similarly increased to 14 days, with Saudi Aramco committed to delivering two additional cargoes by mid-April.

Officials reported that global petroleum markets remain “exceptionally tight,” with recent increases in both benchmark prices and cargo premiums. Market conditions reflect supply-side uncertainties linked to regional developments, and premiums for upcoming cargoes are expected to remain elevated.

Rising international prices have significantly increased the landed cost of imports, leading to larger transaction sizes and putting pressure on existing financing arrangements. The committee emphasized the need for enhanced coordination between financial institutions and importers to ensure the continuity of fuel imports.

Government Response and Facilitation Measures

Finance Minister Aurangzeb directed that the matter be taken up with the SBP and the Pakistan Banks’ Association (PBA) to explore facilitation measures, including temporary enhancements to credit limits and consortium-based financing. The SBP governor assured the committee that prudential limits would be reviewed promptly, and banks were encouraged to adopt a flexible approach to accommodate higher transaction volumes.

The committee also reviewed domestic stock positions and noted that supply remains stable with adequate stocks available nationwide. One crude oil cargo had arrived and was being discharged, with another vessel expected in Karachi soon. Additional shipments are in transit, and import arrangements for March and April are being actively managed.

Refinery throughput is also expected to improve as incoming cargoes are processed. The committee emphasized the importance of monitoring to discourage speculative stockholding and ensure smooth fuel availability across the distribution network, directing provincial administrations and regulatory authorities to intensify oversight.

Monitoring and Future Supply

In preparation for the upcoming Eid holidays and the harvesting season, the committee reviewed supply continuity arrangements and confirmed that OMCs would maintain operational readiness to meet demand. Depots will remain functional to meet commercial requirements, and no disruptions in fuel availability are anticipated.

The committee also reviewed progress on strengthening monitoring mechanisms, including the development of a digital dashboard to improve real-time visibility of stock levels and supply conditions. Aurangzeb emphasized the need for timely data integration and prompt information sharing.

Discussions with international partners to diversify supply sources and mitigate potential disruptions are ongoing, with additional volumes expected to strengthen supply security in the coming weeks. The government’s priority is to ensure uninterrupted petroleum product availability while minimizing the burden on the public.

The committee confirmed that March requirements are fully secured, with coverage available up to mid-April based on current cargo planning and supply arrangements. The recent increase in petroleum prices – Rs55 per litre for petrol and high-speed diesel from March 7, and Rs40 per litre for kerosene oil on Sunday – reflects the impact of unprecedented surges in global oil prices due to geopolitical factors, including concerns over the Strait of Hormuz.