Petroleum prices are one of the most crucial components of the Pakistan’s economy. They can impact various sectors of the economy, including logistics, agricultural sector, and manufacturing industries. In Pakistan, the prices of petroleum products are set by the government, and they can be affected by several factors. In this article, we will discuss some of the key factors that influence petroleum prices in Pakistan.
The key important factors involves in petroleum price fluctuations in Pakistan are:
- Global Oil Prices
- currency exchange rates of Pakistani rupees
- Taxes and duties
- Production costs
- Politics
Global Oil Prices
Global oil prices are one of the most significant factors that impact the prices of petroleum products in Pakistan. Pakistan imports more than 80% of its crude oil, which means that global oil prices have a direct impact on the prices of petroleum products in the country. The spikes of global oil price directly shows a mirror image in the local market.
The global oil prices are influenced by several factors, including demand and supply, geopolitical tensions, and production cuts by oil-producing countries. In recent years, the global oil prices have been volatile due to the COVID-19 pandemic and the ongoing geopolitical tensions between major oil-producing countries. As a result, the prices of petroleum products in Pakistan have also been volatile.
Currency Exchange Rates of PKR
The currency exchange rates is another important factor that influences petroleum prices in Pakistan. Pakistan imports petroleum products in US dollars, and the prices of petroleum products are set in US dollars. Therefore, any fluctuations in the exchange rates of Pakistani Rupee against the US dollar can directly affect the prices of petroleum related products.
If the value of the Pakistani Rupee depreciates against the US dollar, the prices of petroleum products will increase, and vice versa. In recent years, the value of the Pakistani Rupee has been volatile due to the country’s economic and political instability.
Taxes and Duties
In July 2019, the government of Pakistan increased the petroleum levy on petrol and diesel by 5 PKR and 6 PKR per liter, respectively. As a result, the prices of petroleum products catches a spike in the country. Similarly, in June 2020, the government reduced the petroleum levy on petrol and diesel to provide relief to the public during the COVID-19 pandemic.
Which clearly shows that taxes and duties on petroleum products are directly link with the market price. In recent time, government has imposed a huge burden on petroleum products to overcome fiscal deficit.
Production Costs
The production costs of petroleum products is comparatively very low in Pakistan as compare to the rest of the world. Most importantly, Pakistan is dependent on crude oil, the oil price fluctuates more by international market and very less impact of production cost.
Relation between petroleum price and Pakistani politics
Politics plays a significant role in the petroleum prices of any country, including Pakistan. The in power government’s policies, taxation, subsidies, and external factors such as global oil prices and exchange rates are some of the factors that can directly impact the cost of petroleum products.
During the past few decades, Pakistan has experienced different political parties’ rule, and each party came up with a different agenda, observed zero parallelism of objectives till date. Let’s have a look at how the petroleum prices have fluctuated during different political parties’ tenures in Pakistan.
Pakistan Peoples Party (PPP)
During the PPP’s rule from 2008 to 2013, the petroleum prices increased significantly. The PPP government had to increase the petroleum prices due to the increase in global oil prices and the devaluation of the Pakistani Rupee. Moreover, the government also levied additional taxes on petroleum products to increase revenue. As a result, the petroleum prices increased by around 118% during PPP’s tenure.
Pakistan Muslim League – Nawaz (PML-N)
During the PML-N’s rule from 2013 to 2018, the petroleum prices remained stable for most of the tenure. The PML-N government had implemented a policy of maintaining the petroleum prices despite the increase in global oil prices. However, towards the end of their tenure, the PML-N government had to increase the petroleum prices due to the devaluation of the Pakistani Rupee and the increase in global oil prices. As a result, the petroleum prices increased by around 46% during PML-N’s tenure.
Pakistan Tehreek-e-Insaf (PTI)
The PTI government came into power in 2018, and during their tenure, the petroleum prices have been volatile. The PTI government initially increased the petroleum prices due to the increase in global oil prices and the devaluation of the Pakistani Rupee. However, in 2020, the government reduced the petroleum prices to provide relief to the public during the COVID-19 pandemic. As a result, the petroleum prices have increased and decreased multiple times during the PTI government’s tenure.
Pakistan Muslim League – Nawaz (PML-N)
Interim government of PML-N after the VNC motion against PTI. The petroleum price increased by more than 150% in less than a year. In past two decades, Pakistan observed the highest inflation rate in past 10 months.
Comparative Analysis
Looking at the comparative analysis of the petroleum prices during different political parties’ tenures, it is clear that the petroleum prices have increased significantly during the PPP’s tenure, remained stable during PML-N’s tenure, and have been volatile during PTI’s tenure.
The PPP government had to increase the petroleum prices due to external factors such as global oil prices and the devaluation of the Pakistani Rupee. However, the PPP government’s decision to levy additional taxes on petroleum products to increase revenue had a significant impact on the petroleum prices.
The PML-N government’s policy of maintaining the petroleum prices despite the increase in global oil prices was commendable. However, towards the end of their tenure, they had to increase the petroleum prices due to external factors.
The PTI government’s decision to reduce the petroleum prices to provide relief to the public during the COVID-19 pandemic was a positive step. However, the volatility in the petroleum prices during their tenure has created uncertainty for the public.
Controllable factors of petroleum price in Pakistan
One of the most significant controllable factors is taxation. The government can control the taxes imposed on petroleum products, which can directly impact the prices. The government can choose to increase or decrease taxes depending on the economic situation, which can impact the prices accordingly.
Subsidies are another controllable factor that can impact the petroleum prices in Pakistan. The government can choose to provide subsidies on petroleum products to reduce the burden on the public. However, providing subsidies can also have an adverse impact on the country’s economy, and the government needs to balance between providing subsidies and maintaining economic stability.
Moreover, the government’s policies and regulations related to the petroleum sector can also impact the prices. The government can implement policies to encourage investment in the petroleum sector, which can increase the supply and lower the prices.
Conclusion
In conclusion, politics plays a significant role in the petroleum prices in Pakistan. The petroleum prices can be influenced by external factors such as global oil prices and exchange rates, but the government’s policies, taxation, and subsidies also play a crucial role. However, it is essential for the government to maintain stable petroleum prices to provide relief to the public and support the country’s economy.
