PM Rejects Oil Pricing Proposal Over Industry Concerns

The Prime Minister of Pakistan, Shehbaz Sharif, has declined to approve a proposed oil pricing mechanism following significant concerns raised by industry stakeholders regarding potential supply disruptions and associated financial risks.

The proposed framework, based on an inventory cost model combined with a four-week Platts average, had been under review but encountered strong opposition from key industry participants. The Prime Minister has directed that the matter be addressed exclusively by the Ministry of Petroleum, advising against external intervention in the policy process.

Industry bodies, including the Oil Companies Advisory Council, highlighted that the proposed pricing model lacked sufficient clarity in price determination and could result in product imbalances, adversely affecting refinery offtake and overall supply chain stability. Concerns were also raised that such changes, particularly under current volatile market conditions, could disrupt procurement cycles and exert pressure on financial resources.

Additional issues were identified regarding delays in the settlement of price differential claims and the increasing financial burden associated with maintaining import volumes amid rising international oil prices. Stakeholders noted that refineries and oil marketing companies are contractually bound to global suppliers and must comply with strict timelines for the settlement of letters of credit.

The industry further emphasised that the existing pricing mechanism has demonstrated resilience during prior periods of market volatility, including the 2022 global energy crisis, and should therefore be retained to ensure uninterrupted supply.

Separately, Pakistan State Oil cautioned that the proposed changes could lead to liquidity constraints, discourage the execution of new supply agreements, and increase exposure to inventory-related losses. It also raised concerns regarding the potential centralisation of import responsibilities within a single entity, citing risks of operational inefficiencies and heightened financial exposure.

Officials further noted that the petroleum supply environment remains highly sensitive due to ongoing disruptions in international markets, including developments surrounding the Strait of Hormuz, reinforcing the need for policy consistency and stability.