According to the Government of Pakistan, oil is becoming the most significant indicator of economic growth when demand is inelastic. No country can develop without oil. This is especially true for countries that do not have their own oil wells. These countries need to import oil and because of rising oil prices, these countries are facing various shock dummies. As per international oil experts, overall, world oil demand is set to average 102 mb/d in 2023, 1.3 mb/d more than in 2019. Global oil demand is set to rise by 1.9 mb/d in 2023, to a record 101.7 mb/d, with nearly half the gain from China following the lifting of its Covid restrictions. Furthermore, Saudi Arabia has consistently been the world’s top oil exporter, with an estimated 11 million barrels per day (bpd) in 2023. The country has the largest oil reserves globally, and its oil production accounts for nearly a third of the global oil supply.
|Crude Oil Supply In 2023 (million barrels per day)|
Pakistan is also one of the countries experts say, without oil reserves of its own. Although it produces only 20 percent of its oil demand, 80 percent of that demand is met by imports in the form of crude oil and refined petroleum products. According to the Government of Pakistan, no doubt, Pakistan’s energy sector is heavily dependent on imported fuel including oil and will continue to rely on its imports because of several reasons. Higher oil prices in the global market and the massive depreciation of the Pakistani rupee make oil imports more expensive, triggering external sector pressure and widening the trade deficit of Pakistan.
The surge in oil import bills is attributed to rises in value and also a rise in quantity demanded. Oil import bill grew by 95.9 percent to US$17.03 billion July-April FY2022 as against US$8.69 billion during the same period last year. Furthermore, the import of petroleum products went up by 121.15 percent in value and 24.18 percent in quantity. During July-April FY2022, the import of petroleum products grew to US$8.55 billion in July-April FY2022 as against US$3.87 billion during July-April 2021. The Crude oil imports grew by 75.1 percent in value and 1.4 percent in quantity during the period under review. Petroleum crude reached US$4.22 billion July-April FY2022 against US$2.41 billion in the corresponding period in FY2021. Around the world, crude oil prices have risen significantly, counting in Pakistan.
Since June 2018, oil prices have started to rise significantly after the political crises in Iran and Venezuela. Russia cannot sell its oil to the world due to the war between Russia and Ukraine. As the third largest oil producer, the world faces the biggest demand-supply gap because of the ban. Rising oil prices are recovering from the Covid pandemic in 2021 and flood disasters in 2022. This raises taxes on petroleum and other products to meet and cover national spending. Moreover, the rapid devaluation of the Pakistani rupee in recent months impacts the abolishment of government subsidies.
Political unrest is also the cause of price increases affecting Pakistan’s economy. Companies that use fuel as their primary raw material also suffer losses. The agricultural sector, which is one of the country’s main sources of income and offers raw materials for industry, will also be affected. Rising oil prices raise electricity costs. What’s more, it also affects transportation costs as the rent of public transport increases, which ordinary people suffer.
Experts also say that stock markets are also affected by rising oil prices. Higher oil prices can increase the cost of producing commodities and adversely affect stock prices. It is clear that rising oil prices will affect the economy at micro and macro levels, causing inflation and unemployment. The oil price game has a decisive impact on the economic development of the country. As a result, economic growth in developing countries like Pakistan is anti-growth, causing price increases and having a negative reaction to economic growth in both the long and short term.
Presently the government announced that the cost of petrol and diesel was lowered by Rs12 and Rs30, respectively. Sources recorded that the government tries to provide maximum relief to the public on the basis of prices in the international market. Hence, petrol prices have been reduced by Rs12 and the new price of petrol will now be Rs270. Statistics showed that the new cost of petrol is now Rs270 while diesel price is Rs258 for the next 15 days. The price of light diesel oil is being reduced to Rs152.69 per liter, down by Rs12. It may be mentioned that overall oil sales plunged 47 percent year-over-year (YoY) to 1.171 MT, while the total sales shrank by 24pc to 13.970 MT in the July-April period of FY23.
Statistics taken from different sources showed that Pakistan is projected to record economic growth of negative 1.0 percent in the current fiscal year 2023 as against 6.0 percent expansionary growth taken in the previous fiscal year 2022. To recall, almost half of the businesses have already shut down partially or totally and rendered 5 million to 7 million people jobless in the wake of the ongoing economic crisis for the past year in Pakistan. It is also said that historic floods last summer have also led to huge bills for reconstruction and aid, adding to strains on the government budget. The World Bank has estimated that at least $16 billion is required to cope with damage and losses. Yet global factors are making the situation worse. The economic slowdown has weighed on demand for Pakistan’s exports, while a sharp rally in the value of the US dollar last year piled pressure on countries that import significant volumes of food and fuel. The Government of Pakistan has to implement the best policy measures to remove the economic instability in Pakistan.