Pakistan Faces Hidden Risks from Global Energy Shocks: PIDE

News Desk 

Islamabad: A new study by the Pakistan Institute of Development Economics (PIDE), affiliated with the Planning Commission, has highlighted Pakistan’s deep vulnerability to global energy shocks, warning that any disruption in the Strait of Hormuz could trigger severe domestic economic consequences.

Titled “Pakistan’s Exposure to a Strait of Hormuz Shock: Fuel Pricing, Inflation, and External Vulnerability”, the study by Ahsanul Haq Satti and Shahzada M Naeem Nawaz provides a scenario-based analysis of how global energy disruptions ripple through Pakistan’s economy.

The Strait of Hormuz carries nearly 20% of the world’s petroleum supply, about 20 million barrels per day, making it a critical artery for global energy flows. Even minor disruptions, whether geopolitical or logistical, can trigger immediate oil price spikes with wide-ranging domestic effects.

For Pakistan, where over 22% of imports are energy products, the consequences are profound.

The study notes that oil shocks affect not only crude prices but also freight and shipping costs, exchange rates, taxes, and domestic pricing structures, amplifying the impact on consumers. High-speed diesel (HSD) plays a central role in transmitting inflation, given its extensive use in transport, agriculture, and food supply chains.

Read More: https://thepenpk.com/iran-bombings-pose-no-environmental-risk-to-pakistan-pmd/

Using a nonlinear scenario framework, PIDE models three potential outcomes:

• Mild shock: Inflation could rise to 8.8% within six months.
• Stress scenario: Inflation could exceed 10.4%, posing macro-critical risks.
• Severe shock: Inflation could surpass 12%, driven by strong second-round effects across transport and food sectors.

The study also warns that a Hormuz disruption could destabilize Pakistan’s external balance.

Monthly petroleum import costs could increase by up to US$384 million, pushing the current account from surplus to deficit and potentially creating an annual external impact exceeding US$4.6 billion. This would fuel a feedback loop of higher imports, a weaker rupee, rising fuel costs, and intensifying inflation.

To mitigate these risks, the study calls for immediate policy action, including:

• Implementing a transparent, rules-based fuel pricing mechanism.
• Prioritizing diesel monitoring and usage.
• Strengthening coordination between the State Bank of Pakistan, Ministry of Finance, and Petroleum Division.
• Providing targeted support to essential supply chains and public transport.
• Planning fuel financing to safeguard external accounts.

In the longer term, PIDE emphasizes structural reforms to reduce diesel dependence and enhance energy resilience, warning that proactive measures are critical to prevent global oil shocks from destabilizing Pakistan’s economy.