Pakistan’s oil import bill has nearly tripled to $800 million a week, draining forex reserves amid rising global oil prices and fears the conflict may last.
The near-tripling of the oil import bill puts an unsustainable strain on forex reserves
Prime minister Shehbaz Sharif has told the federal Cabinet in its meeting on Wednesday that the oil import bill has gone up from an average of $300 million a week to $800 million a week at present. He said that the price of petroleum prices would be fixed on Friday. This revelation showed that the situation is very grim. So, far, after only a month of the war, oil prices have gone so far out of control that $100 a barrel seems to be the new normal. The collapse of the Islamabad peace talks indicates that the conflict would last, and so long as it kept the Hormuz Strait closed, it would cause a drain on the forex reserves of all oil-importing countries. From over $15 billion a year, the oil import bill is likely to reach just under $42 billion. Will the current crisis last a year? It is possible.
If it does, Pakistan will not be able to pay for its oil. Considering that it ran a trade deficit of $22.3 billion last year, with exports of about $50 billion, it seems that it will run out of foreign exchange in the near future. At the same time, a lot of countries will be in a similar position. The problem, it seems, is not a ceasefire. That seems to be holding for the time being (except for the Israeli adventure in Lebanon). The knowledge of what comes next is what is giving the world’s oil markets pause. The oil price has been climbing steadily ever since the Islamabad talks broke down, and it is possible that the avowed Iranian target of $200 per barrel is in sight. While that will cause immense damage to the US economy, it will completely destroy Pakistan’s, with the next step being a default on its payments, and oil shortages causing long hours of loadshedding.
Before that stage is reached, Pakistan coninues its backchannel efforts to find a middle ground between the two sides. While Iran wants to separate the Hormuz Strait issue for the nuclear, wanting that the settled later, the USA wants both the Strait and the nuclear issues to be discussed simultaneously. The USA’s insistence of settling the nuclear issue seems directed only to feeding President Trump’s ego. While the Hormuz opening is crucial to the USA, as well as the whole world, the nuclear issue matters to no one except Israel.
