“We will shut down all petrol pumps across Pakistan on July 22nd, 6 pm.”
– Pakistan Petroleum Dealers Association
These words are enough to strike fear in the heart of the nation. What follows is utter panic. Thousands of people crowd petrol pumps all across Pakistan. Hours are spent in the scorching sun by those desperate to secure fuel. Schools, offices, lives, all disrupted by the sheer power wielded by the Pakistan Petroleum Dealers Association. What has allowed the nation to be held hostage, time and time again, by petrol strikes? And why does the ransom keep rising?
Last week, a nationwide oil strike was ordered by the PPDA if their demands for a profit margin increase from 3.5% to 6% were revoked. PPDA showed burgeoning concerns of the 30% decrease in sales owing to smuggled Iranian petrol. They premised their demand on the skyrocketing inflation rates that have crippled the economy and hence adversely impacted gasoline operator’s profitability. The threatened strike served to reap profits from a sinking economy heavily dependent on oil as its primary energy source.
Pakistan’s Petrol Dependency
Irrespective of the underlying reason, the attention must be refocused on Pakistan’s dependency on oil and how this dependency has allowed PPDA to hold the whole country hostage. This dependence stems from low capacity of domestic refineries which fail to meet local demand. In 2019, the production of 4.3 million metric ton of crude oil only met 20% of the demand. Oil as our primary energy source fuels many key sectors and is single handedly powering Pakistan’s economic development. In 2020, Pakistan’s energy production relied heavily on fossil-based fuels, accounting for approximately 61% of the total energy mix.
A notable fact worth mentioning is that a substantial 85.5% of the world’s energy consumption is derived from fossil fuels. In addition, in 2022, of 34 million cars, only 8000 cars were electric.
Therefore, an oil strike could be a final trigger for an economic slump.
The Consequence:
1. Soaring Trade Deficits
Pakistan’s consistent trade deficits since 2003 owing to high imports of energy is one of many repercussions of the dependency. Crude petroleum is not only the third most imported product in Pakistan but also represents the largest portion of the import bill (27%). Every month, USD 1.3 Billion worth of petrol is imported into the country. Considering the significant reliance on fossil-based fuels, there is a pressing need for a sustainable approach, focusing on alternative fuels. This shift towards sustainable energy sources aims to reduce trade deficits and promote a more environmentally friendly energy mix.
2. Imported Inflation
Pakistan’s heavy reliance on oil imports makes it increasingly susceptible to price fluctuations in the global market. The relationship between international crude oil prices and the consumer price index (CPI) is highly correlated, with a coefficient of approximately 0.87%. During the period from 2000 to 2004, inflation exhibited a predominantly upward trend. This phenomenon was closely linked to the substantial fluctuations in global oil prices, given that oil held a significant position as the largest import during that time. In simple terms, since oil is our biggest import, global price fluctuations in oil directly affect imported inflation. This not only slows down energy generation and throttles the existing circular debt issue.
3. Air Pollution on the Upswing
Trade deficits and debt issues aside, the rising emission rates and worsening air quality of Pakistan is yet another push towards an ecological direction. Pakistan ranks 3rd on the worst air quality index in the world. The vehicular emissions are increasing at a phenomenal rate. NOx alone has seen a 67% increase in the last decade. The petrol strikes are just a reminder of a dependence that is leading the country steadily into ruins.
The Overlooked Solution
A plan to escape this hostage situation exists right under our nose. Pakistan has tremendous potential for renewable energy generation. To put it into further context, utilizing just 0.071% of the country’s area for Solar PV would meet Pakistan’s current electricity demand, freeing the citizens of the load shedding crisis. Just increasing solar and wind capacity up to 30% can save $5 billion in fuel savings over 20 years, whilst also reducing greenhouse gas emissions. These estimated figures are a glimpse of the benefits to be reaped.
Lowering Risk From Petrol Strikes
Moving to renewable energy sources is a costly option but only in absolute terms. The initial investments are the highest costs. However, the returns in narrowing trade deficits and reduced dependency on petrol strikes would cover the investment overtime. Trade deficit as of 2021 was $-31.11 billion off which $19.32 billion dollars were imports of energy. Our circular debt (standing at Rs2.47 trillion in March 2022) is mostly recorded on part of fuel payments. All these figures point to the direct cost savings in moving towards a sustainable solution. There are areas untapped, and potentials forgone. However, for this solution to see the light of day, politicians must be proactive. They need to look beyond their 5-year tenure and devise strategies that cut the cord on these issues permanently. The end goal is for Pakistan to never again be blackmailed through petrol strikes.
Read More: Fossil Fuel Taxation in Pakistan
Leave a Reply