Saudi oil output shift could ease Pakistan’s import bill

Saudi Arabia’s proposal to restore oil production under OPEC+ could reduce global crude prices, offering Pakistan relief on its import bill but also raising fiscal and industrial challenges.

Saudi Arabia’s decision to propose an early restoration of oil production under OPEC+ marks a pivotal shift in global energy markets that will directly affect Pakistan’s fragile economy. Riyadh, which has already rolled back 2.2 million barrels per day (bpd) of its voluntary cuts over the past five months, has now signaled a plan to inject an additional 1.66 million bpd into the market. The move shifts Saudi strategy from protecting prices to defending market share, pushing Brent crude down to $65.60 a barrel and West Texas Intermediate (WTI) to $62.05.

The decline in oil prices offers immediate relief.for Pakistan, a net oil importer with an annual petroleum import bill exceeding $17 billion in fiscal year 2024. Lower crude prices could ease pressure on foreign exchange reserves, which remain critically low, and help create fiscal space for the government. If passed on to consumers through fortnightly price revisions by the Oil and Gas Regulatory Authority (OGRA), cheaper fuel would help slow inflation, which has been a persistent burden on households and businesses.

However, the impact will not be straightforward. The government relies heavily on the Petroleum Levy (PL) for revenue, and a drop in international prices could tempt policymakers to raise the levy to meet fiscal targets. This practice has often diluted the benefits of cheaper oil for end consumers. Balancing fiscal needs with public relief remains a recurring challenge, and the outcome will depend on the government’s revenue strategy in the coming months.

At present, the Pakistani consumers are paying around Rs 77 petroleum levy on petroleum products and government had a plan to increase it to Rs 100 per liter.So, reduction in global oil prices would offer an opportunity to government to make more revenue by increasing rates of petroleum levy.

The effects of cheaper oil will ripple unevenly across Pakistan’s domestic economy. Exploration and production companies such as Oil and Gas Development Company Limited (OGDCL), Pakistan Petroleum Limited (PPL), and Mari Petroleum stand to lose, as their revenues are directly tied to international crude benchmarks. Sustained low prices could compress margins, curbing investment in new projects and reducing shareholder returns.

For refineries, the picture is mixed. Lower crude costs reduce input expenses but can also squeeze export margins, particularly for products like naphtha. Oil marketing companies (OMCs), whose margins are tightly regulated by OGRA, may see limited benefit, while dealers face uncertainty tied to pricing volatility. The renewable energy sector could also be affected as cheap oil reduces the competitiveness of solar and wind projects, potentially delaying Pakistan’s energy transition.

Beyond economics, the Saudi shift carries strategic implications for Pakistan. More than 80 percent of Pakistan’s crude and refined petroleum imports come from Gulf suppliers, cementing Islamabad’s dependence on regional producers. A major Saudi decision on production levels therefore directly influences Pakistan’s cost structure and energy security.

Another channel of impact lies in remittances. Pakistani workers in the Gulf, especially Saudi Arabia and the UAE, send back around $30 billion annually, a lifeline for the balance of payments. Historically, high oil prices boost Gulf economies, fueling job creation and remittance flows. Prolonged price weakness, however, could strain regional growth and indirectly reduce Pakistan’s inflows. Although the correlation is not always linear, policymakers in Islamabad remain sensitive to shifts in Gulf labor market dynamics.

Saudi Arabia’s broader financial relationship with Pakistan also enters the picture. In the past, Riyadh has extended bailouts through concessional loans, deferred oil payments, and cash deposits to stabilize Pakistan’s reserves during crises. Under Crown Prince Mohammed bin Salman’s Vision 2030 strategy, however, Saudi support is increasingly investment-oriented. The Kingdom now favors structured, high-yield projects over blanket aid, making Pakistan’s ability to attract capital contingent on its political stability and regulatory transparency.

The upcoming OPEC+ meeting, where production levels will be finalized, could mark a turning point. A decision to flood markets with more supply may lower Pakistan’s import costs and help tame inflation, but it risks undermining government revenue and the earnings of domestic producers. Conversely, if oil prices rebound after initial adjustments, Pakistan could see only fleeting relief.

Ultimately, Saudi Arabia’s oil policy underscores Pakistan’s structural vulnerability to decisions made abroad. Riyadh’s pivot from price defense to market share protection offers Islamabad both an opportunity and a warning. Whether the net effect is fiscal relief or economic strain, Pakistan’s path will remain closely bound to the energy calculus in Riyadh.

In the end, the Saudi OPEC+ pivot highlights a deeper reality: Pakistan’s economic stability will continue to hinge on the choices of its Gulf partners, particularly Saudi Arabia, whose strategic and financial influence extends well beyond oil shipments to Islamabad.