With inflation hitting record highs in the past few months, Pakistanis fed up with the near-constant rise in fuel prices have turned to Iran for cheap fuel.
Refinery sources and industry analysts told S&P Global Commodity Insights that the popularity of Iranian oil hurt volumes at local refineries, which were expected to see disappointing sales in the second quarter of 2023.
Local refineries were already experiencing a drop in demand as the slowing economy forced many sector firms to close, and people turned to public transport due to rising costs.
According to the Oil Companies Advisory Council, the country’s oil sales fell 46 percent year-on-year in April — a drop of about 8.8 million barrels. In the same month, fuel consumption fell by 83 percent to just 70,000 metric tons.
The S&P report said that rising inflation, a weakening rupee and a lack of foreign exchange reserves have prompted small traders and those with business networks in Iran to buy Iranian oil at heavily discounted rates, Arif Habib Ltd. Several industry analysts including Head of Research of Tahir Abbas said.
Insight Securities said significant price differentials between Pakistani and Iranian barrels, coupled with widespread availability of barrels in the country’s southern regions, were hurting refiners’ sales.
The average retail price of diesel in Pakistan has been Rs 288 per liter in recent months, the report said. In comparison, Iranian diesel is selling as low as Rs 230 per litre, making a decent profit for private dealers.
“Between 35,000-60,000 barrels per day of diesel could have flowed into the domestic market under the radar through southern sea and land transport routes in recent months,” says a senior executive at the Attock refinery and an intermediate distiller. May I increase.” Distribution management sources at Pak Arab Refinery, or PARCO, told S&P.
Pakistan has been banned from importing Iranian oil since the US imposed sanctions on the neighboring country’s petroleum and petrochemical trade in 2013.
Refinery sources and analysts at Insight Securities said authorities were turning a blind eye to imports amid dwindling foreign reserves.
“Iranian diesel infiltration is on the rise and could replace 25%-30% of Pakistan’s total diesel sales,” said a private dealer.
Apart from reduced sales to local refiners, Iranian oil imports have also cost the government billions of dollars, which relies heavily on GST and the Petroleum Development Levy from fuel sales to generate revenue.
The report added that many private dealers are offering smuggled Iranian products to oil marketing companies at subsidized rates without fear of reprisals by reducing the Petroleum Development Levy.
“The government either does not understand the gravity of the situation or is turning a blind eye due to lack of foreign exchange reserves required for legal imports of deficit products,” said an Attock refinery executive.
He said the smuggling of Iranian oil “has never happened on such a large and unprecedented scale” and if it continues, local refineries are at risk of being shut down.
