Pakistan’s Oil Import Bill Triples to $800 Million as US-Iran War Wrecks Economy

Key facts

• Pakistan's oil import bill surged from $300 million to $800 million per month.
• Prime Minister Shehbaz Sharif said the US-Iran war has wiped out two years of economic progress.
• The State Bank of Pakistan raised its key policy rate by a full percentage point to 11.5 percent.
• Iranian Foreign Minister Abbas Araghchi visited Pakistan for talks lasting two hours with Sharif.
• US-Iran ceasefire talks in Islamabad on April 11 lasted 21 hours and resulted in a ceasefire extension.
• Economist Kamran Butt warned oil price hikes trigger a chain reaction across the economy.
• Pakistan is under strict IMF supervision, limiting its ability to subsidize fuel.
• Fuel costs affect diesel for trucks and tractors, and petrol for commuting, driving inflation.

A Price Shock Unprecedented in Half a Century

Pakistan is reeling from its most severe fuel price shock in more than 50 years, a crisis that threatens to batter every sector of the economy and undermine the government of Prime Minister Shehbaz Sharif. The oil import bill has more than doubled, surging from $300 million before the conflict to $800 million now, who said this has erased all the economic progress the country made over the past two years. The knock-on effects are already cascading through agriculture, transport, and the prices of food and basic goods, worsening the plight of families already grappling with a cost-of-living crisis. The State Bank of Pakistan has raised its key policy rate by a full percentage point to 11.5 percent, citing heightened risks from the prolonged Middle East conflict.

Government Caught Between IMF Constraints and Public Anger

The government faces a stark choice: pass on global oil prices to consumers and risk public fury, or subsidize fuel and blow a hole in the budget. Pakistan is under strict IMF supervision, which limits its ability to spend its way out of the crisis. The government was widely criticized for botching negotiations in April when it sought IMF approval for higher fuel subsidies and was rebuffed. Economist Kaiser Bengali, former adviser for planning and development to the Sindh chief minister, described the situation as one of absolute dependency. “Even a $1bn tranche, which is a microscopic amount in global fiscal terms, can make the difference between survival and collapse,” he said. He dismissed the government’s austerity measures as “theatre” that does nothing to impact the oil market.

Sharif’s Diplomatic Push for a Ceasefire

Speaking during a Cabinet meeting, Sharif said Pakistan’s oil import bill had surged from $300 million before the conflict to $800 million, placing additional pressure on the economy. He noted a reduction in petroleum consumption during the current week compared to the previous one, and said a task force is monitoring the situation daily. Sharif highlighted Pakistan’s efforts to mediate peace, including marathon talks between Iran and the US held in Islamabad on April 11 that lasted 21 hours and marked a significant diplomatic breakthrough. He credited contributions from Field Marshal Asim Munir, Deputy Prime Minister and Foreign Minister Ishaq Dar, and other senior officials for the success of the negotiations. As a result, the ceasefire between Iran and the United States was extended and continues to hold.

Iranian Foreign Minister’s Visit and Assurance

Iranian Foreign Minister Abbas Araghchi visited Pakistan with his delegation and held multiple rounds of talks, including a two-hour session with Sharif. Araghchi assured that Iran would respond positively after consultations with its leadership. Sharif said Pakistan made sincere and coordinated efforts for the success of the negotiations, underscoring Islamabad’s role in promoting regional stability.

Economic Chain Reaction and Vulnerability

Economist Kamran Butt explained that oil price hikes trigger a chain reaction across the economy: they increase transportation costs, push up the prices of daily-use commodities and food items, raise the overall cost of living, reduce purchasing power, increase poverty and unemployment, slow economic activity, and eventually fuel public discontent. Pakistan is particularly vulnerable because it is heavily dependent on imported energy, and higher costs worsen its already precarious balance-of-payments position. Fuel prices feed directly into inflation – diesel powers trucks, buses, tractors, generators and parts of the food supply chain, while petrol affects commuting and consumer transport. The country is also highly reliant on remittances from workers overseas, mostly labourers in Gulf states, and the war could devastate this income.

A Fragile Economy Under Multiple Strains

All this is impacting an already fragile economy weakened by years of inflation, debt stress and sluggish growth. The State Bank noted that prolonging the Middle East conflict has intensified risks to the macroeconomic outlook, with global energy prices, freight charges and insurance premiums remaining significantly above pre-conflict levels, and supply chain disruptions contributing to prevailing uncertainty. Soaring fuel costs have a global impact, but Pakistan’s dependence on imported energy makes it especially exposed. The government’s options are limited by IMF oversight, and analysts say the country is caught between two bad options.

Outlook: Austerity Theatre vs. Real Reform

Economist Kaiser Bengali criticized the government’s penchant for “austerity theatre” – selling off official cars or symbolic goats and horses – as a joke played out for 40 years that does nothing to impact the oil market. The crisis underscores the structural weaknesses of an economy that remains dependent on external support and vulnerable to global shocks. With the ceasefire holding but the underlying conflict unresolved, Pakistan faces a prolonged period of economic strain. The government’s ability to navigate the crisis will depend on both diplomatic efforts to stabilize the region and difficult domestic policy choices.

The bottom line

• Pakistan's monthly oil import bill has tripled from $300 million to $800 million due to the US-Iran war.
• Prime Minister Shehbaz Sharif says the conflict has erased two years of economic progress.
• The State Bank raised its policy rate to 11.5% to counter inflation and macroeconomic risks.
• Pakistan mediated 21-hour US-Iran talks in Islamabad that led to a ceasefire extension.
• Iranian Foreign Minister Araghchi visited Pakistan and assured a positive response after consultations.
• The government is constrained by IMF supervision and faces a choice between passing on costs or subsidizing fuel.