KARACHI: Pakistan's shift to daily petroleum pricing is facing its first major stress test as renewed U.S.-Iran tensions and Persian Gulf risks roil global oil markets, pushing petrol prices up 16.42% in just over a month, according to an economic analysis released Thursday by the Institute of Cost and Management Accountants of Pakistan (ICMA).
The daily pricing mechanism, introduced in July 2026, has accelerated the transmission of international price shocks to domestic pumps but has also created mounting uncertainty for households and businesses, ICMA said in its report, "Is Daily Fuel Price Adjustment the Right Response to Oil Shocks?"
Petrol rose from Rs336.03 per liter on Aug. 1 to Rs391.22 by Sept. 17, while high-speed diesel climbed 7.41%, from Rs392.38 to Rs421.45, over the same period, according to the report. The Oil and Gas Regulatory Authority was tasked with ensuring transparent, market-linked pricing, while the Petroleum Pricing Committee has weighed price-shock triggers and rules-based intervention.
"The challenge now is to preserve market responsiveness while preventing sudden global oil shocks from translating into excessive domestic price volatility," the report said.
Uneven Price Movements
Price movements have been highly uneven across products. On Aug. 20, diesel fell Rs32.63 per liter while petrol rose Rs2.97 — a divergence ICMA attributed to product-specific international market dynamics within the same pricing cycle.
Monthly averages show petrol rising from Rs325.47 per liter in July to Rs363.15 in September, an 8.66% increase, while diesel rose from Rs368.22 to Rs390.32, up 2.84%.
Malaysia appears more severely affected in cumulative petrol-price terms, with gasoline up 6.60% over one week and 8.10% over three months, exceeding Pakistan's increases of 5.50% and 1.70%, respectively. But ICMA cautioned that those figures capture cumulative changes, while Malaysia adjusts unsubsidized fuel prices weekly under a defined pricing window.
"Pakistan's smaller petrol increase therefore does not imply a less disruptive pricing regime," the report said. "Daily revisions transmit shocks, weaken planning certainty and alter transport and production costs."
Levies Hold Steady as Market Costs Drive Volatility
Market-linked costs, not government levies, remained the main driver of short-term price volatility. The petroleum levy stayed at Rs80 per liter on both petrol and diesel as of Sept. 17, accounting for 20.45% of the petrol price and 18.98% of the diesel price. The Climate Support Levy remained at Rs5 per liter, and sales tax stayed at zero.
Petrol's ex-refinery price rose from Rs273.88 to Rs280.76 between Sept. 16 and 17, while diesel increased from Rs308.96 to Rs314.58, underscoring the influence of market-linked costs.
Unlike petrol, diesel's levy was progressively increased from Rs70.82 to Rs80 per liter during the review period, showing that fiscal adjustments operated alongside market-driven price movements.
Businesses Report Planning Difficulties
Frequent repricing is increasing uncertainty across business and supply chains, ICMA said. Manufacturers and dealers have reported difficulties in production and freight budgeting, export pricing, inventory valuation and working-capital management. Fuel-price increases have also fed into passenger fares and freight charges, widening the impact beyond the petroleum market.
The central policy trade-off is between market responsiveness and short-term predictability, the report said, noting that the government's Petroleum Pricing Committee has similarly emphasized greater predictability and protection from abrupt price movements.
Regional Approaches Offer Alternatives
ICMA examined international approaches during the 2026 oil shock. Gulf countries maintained monthly market-linked or administered pricing, providing greater pump-price stability. Malaysia kept weekly adjustments for unsubsidized fuels while protecting eligible consumers through fixed subsidized prices. India reduced excise duty by Rs10 per liter while holding retail prices unchanged. Bangladesh held prices steady for successive months despite its monthly formula-based framework. Thailand temporarily capped diesel and later moved toward gradual increases, while the Philippines encouraged staggered pass-through of exceptionally large increases.
Policy Recommendations
ICMA recommended separating daily price discovery from retail price adjustment, with OGRA continuing daily monitoring and disclosure while retail prices reset weekly using a rolling average of international prices.
The institute also proposed a rules-based exceptional shock mechanism — a pre-defined price-shock corridor under which normal movements pass through routinely but exceptionally large increases are phased across subsequent pricing periods. The mechanism should be automatic, symmetric for increases and decreases, and time-bound.
During severe shocks, relief should target public transport, essential freight and vulnerable users rather than freezing prices market-wide, ICMA said. It also urged stronger fuel-supply resilience through adequate petroleum inventories, diversified sourcing and emergency supply protocols.
"The objective should therefore be 'daily transparency, not daily volatility': a framework that remains responsive to international markets while providing businesses and consumers with greater predictability and clearly defined protection against exceptional shocks," the report concluded.
