The Middle East war has certainly taken the attention of the world, but for Pakistan, the aftermath is nothing short of an existential economic threat. With the United States, Israel and Iran prosecuting a war that has shaken the Persian Gulf, Pakistan has become among the most strategically vulnerable countries in the world.
This is because 70 to 80 per cent of Pakistani crude oil, as well as an almost complete share of its LNG imports, passes through the Strait of Hormuz, which is a highly important maritime chokepoint now being used as a weapon by Iran.
Pakistan is structurally vulnerable. Current production of crude is about 63,000–64,000 barrels per day compared with a consumption of about 480,000 barrels per day, and above 80–85 per cent of the demand has had to be supplied by imports.
Under normal circumstances, the country has only approximately 10 days of crude oil reserves, and total stocks of petroleum reach three to four weeks. In comparison, India has strategic and commercial reserves that amount to about 60–70 days of demand, and China has about 230 days of reserves.
This imbalance highlights the extent to which Pakistan is exposed to external energy shocks.
The fiscal cost is not abstract. About 80 per cent of Pakistan’s crude oil imports and two-thirds of its liquefied natural gas (LNG) pass through this chokepoint, which transfers 20 million barrels of world oil per day.
As indicated in a study by PIDE, a complete shutdown of the Strait would increase Pakistan’s oil import bill to between 3.5 billion and 4.5 billion a month, and would possibly result in consumer inflation rising from 7 to 17 per cent.
Although the power sector’s circular debt has just been cut down to Rs 1.66 trillion (July 2025), the recent surge in global prices may roll these gains back, and a prompt shift to energy conservation, coupled with the growth of domestic refining and storage facilities, will be necessary.
This is not the first time that imported energy shocks have dragged Pakistan to the edge. During the 2022–23 Russia–Ukraine crisis, the price of Brent crude surged, and Pakistan was on the verge of sovereign default.
The expansion of storage capacity to at least 30 days or beyond has been a long-standing policy debate in Pakistan, based on practices in other countries
The rupee depreciated from approximately Rs 170 per dollar in early 2022 to the lowest level ever recorded of Rs 305 in August 2023. The currency has partially bounced back to the range of Rs 278–280, but the structure of dependency is unchanged.
In this regard, it was not an isolated 2022 crisis, but a hint towards underlying systemic vulnerability.
So why is a nation that has a coastline, vibrant exploration acreage, and a 100 million-plus labour force importing most of its transport fuel? It is because our refining industry, designed in a different age, is structurally ill-adapted to market requirements.
The currently operating hydroskimming refineries in Pakistan were originally intended to process a crude slate that produces large quantities of furnace oil, which is a residual fuel that has almost no domestic demand.
The implication is that we import finished petrol and diesel at a high price and export excess furnace oil at a lower price, forfeiting the gross refining margin on both sides.
The Brownfield Refinery Upgradation Policy 2023 was developed by the government to eliminate this structural imbalance. The policy gives a certain period of 10 per cent deemed duty, that is, tariff protection on petrol and diesel, under a restricted duration (extended to about seven years by the 2024 amendments), provided refineries agree to upgrade by signing legally binding contracts with OGRA.
The goal is to transform the refining industry in Pakistan into one that produces high-value Euro-V refined fuel, rather than simple skimming, while keeping furnace oil content as low as possible.
Part of this deemed duty is deposited into escrow accounts to fund capital investment in refinery upgrades, up to about 25–27.5 per cent of project costs. These incentives, however, come with very clear conditions.
Refineries that do not sign upgrade agreements within the defined timelines will receive reduced or no benefits, highlighting the time-sensitive nature of the policy framework.
The argument that Pakistan does not have the hydrocarbon foundation to support refinery investment becomes more difficult to defend. OGDCL’s Baragzai X-01 exploratory well in the Nashpa Block, Kohat, Khyber Pakhtunkhwa, has delivered an extraordinary chain of discoveries in early 2026.
The Datta Formation produced 4,100 barrels of oil per day (bpd) and 10.5 million standard cubic feet (MMSCFD) of gas per day in January. The formations that followed in the same well were the Samana Suk and Shinawari, with 3,100 BOPD and 8.15 MMSCFD.
The Lockhart Limestone formation contributed a further 3,765 BOPD and 11.2 MMSCFD in March. In less than three months, Baragzai X-01 has contributed an estimated 9,480 barrels per day to the domestic production ledger across three formation discoveries at one well.
The geological potential of the Indus Basin is not questionable. What has been missing is sustained investment and the refining capacity to process what lies beneath it.
The strategic response of Pakistan should run on two parallel tracks. First, the Brownfield Refinery Upgradation Policy in question should be enforced strictly, and incentives should be made dependent on adherence to upgrade obligations.
Second, the nation has to manage its persistent shortage of strategic petroleum reserves. Existing crude oil reserves will supply approximately 7–11 days of demand, and total petroleum stocks extend only to a few weeks, which exposes the economy to external shocks to a great extent.
The expansion of storage capacity to at least 30 days or beyond has been a long-standing policy debate in Pakistan, based on practices in other countries.
Although recent actions to ensure supply routes may provide temporary relief, they fail to rectify the structural vulnerability.
Pakistan does not have control over events in the Strait of Hormuz. Yet it still has complete independence as to the extent to which its economy will be vulnerable to the next shutdown, the next war, or the next surge in prices.
The blueprint is the Brownfield Refinery Policy 2023. The tools for energy independence are not hypothetical. The question is whether there is the political will to use them before the next crisis eliminates the alternative altogether.