Govt may have to ‘unfreeze’ fuel prices amid global surge

ISLAMABAD: Amid a sharp rise in jet fuel and kerosene prices, the government is considering unfreezing prices of other petroleum products to reflect global trends, while introducing targeted subsidies for two- and three-wheelers.

While petrol and high-speed diesel prices have been kept unchanged in recent weeks, the rates of jet fuel (JP-1) and kerosene have been increased without formal announcement.

Similarly, kerosene prices increased by Rs71 per litre, or about 20pc, to Rs429 per litre from Rs358 per litre within a week. Since early March, kerosene prices have risen by 127pc, reflecting global energy market volatility following the US-Israel war on Iran.

On the other hand, the government froze petrol and diesel prices after an initial increase of Rs55 per litre each, allocating around Rs69 billion in subsidies to offset subsequent price revisions.

While the government has protected its petroleum levy targets on both products, it has diverted funds from development projects and emergency funds for natural disasters to maintain prices during Ramazan.

Officials said the government is currently absorbing about Rs175 per litre in diesel costs and around Rs75 per litre in petrol.

Officials said the freeze could not be sustained for long while the review of two IMF programmes had been held in abeyance for more than two weeks now.

“You cannot postpone inflation artificially for long; the more you delay price adjustments, the greater pain you build for the future,” an official said.

It was in this background that the government said it is “actively evaluating price divergence between international and domestic markets to support balanced and timely policy calibration”.

The statement followed a meeting of a special cabinet committee, formed by the prime minister to monitor petroleum prices and review the energy supply situation amid global volatility.

The committee also reviewed a proposal for targeted fuel subsidies for two- and three-wheelers instead of holding back general oil price adjustments.

Officials said petroleum inventories remain at comfortable levels, supported by secured imports and steady refinery output, with supply chains functioning smoothly across the country.

Cargo inflows are continuing as scheduled, with March and April fuel shipments largely secured and additional imports planned to strengthen reserves. Refineries were operating at regular production levels, with efforts underway to maintain optimal throughput and ensure efficient processing of incoming crude.

The finance minister, who chaired the meeting, directed authorities to ensure close monitoring of international markets, stock levels and supply chains.

A detailed review of national stocks and international energy market conditions was presented, highlighting notable movements in global benchmarks. The committee assessed emerging global price signals and their transmission implications, and placed particular emphasis on operational readiness across the domestic energy supply chain.

Rising jet fuel prices are expected to further increase airfares on both domestic and international routes, with airlines already passing on increased costs to passengers.

Aviation experts said fuel, which accounts for 30-40pc of airline operating expenses, has become significantly more expensive, forcing airlines to raise fares by 20-30pc.

Air travel to Europe has been particularly affected due to restricted airspace and limited routes through the Gulf region.

“Last week, a Lahore to Denmark ticket via Dubai, which was previously available for Rs400,000, was selling for Rs1 million via Turkey last week because of the impact of the war,” he said.

Experts also warn that flying schools and training centres are also facing mounting costs. “How can Pakistani airlines avoid passing on additional costs to passengers for long?” an aviation expert said. “The training cost of pilots has significantly increased due to the surge in jet fuel prices”.

Since the start of the Middle East war, around 325 flights of Pakistani airlines — including about 200 operated by Pakistan International Airlines (PIA) — have been cancelled, according to a spokesperson for the national flag carrier.

PIA continues to operate flights to Fujairah and Al-Ain, while services to Kuwait, Qatar, Dubai and Bahrain remain suspended. Flights to Saudi Arabia are operating as scheduled.

The spokesperson said base airfares had not been increased, but fuel surcharges ranging from $10 to $100 had been introduced.

Regarding the impact on volume of passengers, he said the numbers coming from Saudi Arabia and UAE were quite high, while passenger traffic for the Gulf region from Pakistan had declined.

Flight operations to Qatar, Kuwait, and Bahrain are already suspended, but no significant impact has been seen on traffic to Europe, even though these passengers have to pay higher costs due to longer routes that avoid troubled airspace.

Meanwhile, exporters have raised concerns over rising air cargo costs. The Pakistan Fruit and Vegetable Exporters Association said ground handling companies have imposed an additional charge of Rs50 per kilogram on shipments, warning that exports could be disrupted.

“This additional burden will cause financial losses to exporters,” the association said, adding that fruit and vegetable exports via air routes have already been affected.

Mohammad Asghar in Rawalpindi and Zulqernain Tahir in Lahore also contributed to this report