US-Iran war: Pakistan mulls WFH, price revisions to conserve fuel
What's the story
Cash-strapped Pakistan is contemplating a series of austerity measures to conserve fuel and ensure market liquidity. This comes in the wake of rising global fuel prices due to the ongoing conflict in West Asia and the potential prolonged closure of the Strait of Hormuz, which Iran's Islamic Revolutionary Guard Corps (IRGC) said it maintains full control of. According to a report by Dawn, these measures may include mandatory work-from-home for employees, weekly petroleum price revisions, and compensation for oil companies.
Fuel stock
Pakistan has enough fuel stocks for 25-26 days
Officials say Pakistan has over 500,000 tons of petrol and diesel each in stock. This is enough to last around 26 days for petrol and 25 days for diesel consumption. However, the government has taken precautionary measures by approving Pakistan State Oil to issue import tenders for both fuels from suppliers outside the Strait of Hormuz. Islamabad has also requested Saudi Arabia to use an alternative Red Sea route for future oil shipments.
Cost surge
Insurance and freight rates have gone up significantly
The ongoing crisis has led to a sharp increase in shipping and insurance costs for oil cargoes. Insurance costs have skyrocketed from $30,000 to nearly $400,000 per ship. Freight rates have also gone up, with ship charter rates exceeding $4 million compared to around $900,000 before the crisis. These rising costs are putting pressure on oil marketing companies and refineries in Pakistan, officials told Dawn.
Compensation plan
Government to provide compensation to oil marketing companies
To ensure fuel imports continue and supply chains remain intact, the Pakistani government is considering a compensation mechanism for oil marketing companies (OMCs). Without this compensation, OMCs could avoid imports and declare force majeure (a provision in a contract that frees both parties from obligation). The government is also mulling over shifting petroleum price revisions from a fortnightly to a weekly basis to pass on rising costs faster and avoid financial strain on suppliers.
Stock review
Diesel supplies at greater risk than petrol
Amid these developments, Finance Minister Muhammad Aurangzeb has chaired a meeting to review petroleum stock levels and supply chains. According to officials, the government has asked all province chief secretaries to attend the newly formed 18-member cabinet committee to monitor petroleum prices scheduled for Thursday. Per PTI, while petrol imports remain safe, diesel imports are not. Pakistan relies heavily on long-term supplies from Kuwait, and all cargoes must pass through the Strait of Hormuz.