Govt Revises Diesel Pricing, Restricts Imports to PSO

The federal government has approved a revised pricing mechanism for high-speed diesel (HSD) in response to supply disruptions arising from geopolitical tensions in the Middle East, elevated import premiums, and increased shipping risks through the Strait of Hormuz, all of which have intensified pressure on fuel import costs.

According to official documents, the federal cabinet considered a summary submitted by the Petroleum Division and approved the proposal outlined in Para 3 under Case No. 264/Rule-19/2026/327.

Under the revised framework, a structured pricing formula has been introduced, whereby the base price will be determined using the average of the previous week’s Dubai crude oil price (PCAAT00), as published by Platts.

The mechanism also incorporates Aramco’s crude premium for Arab Extra Light supplied to Asia—currently noted at $3.00 per barrel for April 2026—applicable to Gulf-origin crude sourced from locations such as Fujairah and Yanbu.

To manage volatility, the government has introduced a cap and floor on HSD crack spreads, setting an upper limit of $41.89 per barrel and a lower bound of $11.33 per barrel, based on a historical weighted average benchmark.

The policy further allows additional premiums for crude imported from outside the Gulf region, permitting reimbursements of up to $10 per barrel through the Inland Freight Equalization Margin (IFEM).

Recognising wartime logistical pressures, the government has approved freight-related adjustments, including an allowance of $8 per barrel for crude imports from the Gulf and an additional freight adjustment of up to $5 per barrel for non-Gulf imports, subject to approval by the National Coordination and Management Council (NCMC).

The framework ensures cost recovery for Pakistan State Oil (PSO), with applicable customs duties and incidental expenses on imports to be incorporated into consumer pricing.

A key provision of the policy restricts the import of HSD exclusively to PSO, with other oil marketing companies (OMCs) requiring explicit approval from the NCMC for any imports, effectively centralising procurement.

To address financial implications, any pricing differential based on projected consumption of approximately 5,000 tonnes per day will be reimbursed through the IFEM mechanism. For the week beginning April 11, 2026, PSO’s cost differential has been estimated at Rs11.8 billion, with refineries committing Rs7.1 billion toward reimbursement and the remainder to be managed through IFEM.

The government has clarified that no retrospective adjustments will be made to pricing, formulas, or taxation structures, ensuring policy consistency.

Although the revised mechanism is initially applicable for a three-month period, authorities have indicated that it may be revisited earlier if geopolitical conditions stabilise and international prices decline.

Other petroleum products, including motor spirit, superior kerosene oil, and light diesel oil, will continue to be priced under the existing weekly mechanism approved on March 6, 2026. Existing parameters such as exchange rate adjustments, refinery deemed duty, research octane number, and sulphur-related penalties will remain unchanged.

Under the updated authority structure, the Oil and Gas Regulatory Authority (OGRA) will continue to notify price adjustments within a margin of Rs3 per litre. Any variation beyond this threshold will require a decision by the Petroleum Division in consultation with the Prime Minister’s Office.

The Petroleum Division has directed OGRA to implement the revised mechanism on an immediate basis, reflecting the urgency created by volatile global energy conditions.

The policy shift comes amid heightened geopolitical tensions, particularly between the United States and Iran, which have amplified risks around the Strait of Hormuz—a critical global oil transit route—leading to increased freight, insurance costs, and overall price volatility in international energy markets.

Given Pakistan’s reliance on imported petroleum products linked to global benchmarks, these developments have directly translated into higher domestic fuel costs, further underscoring the economy’s sensitivity to external shocks in the energy sector.