Petrol prices in Pakistan have been continuously increasing, which has made it difficult for many people to manage their expenses. Although the main reason for the increase in oil prices is the price of oil in the international market, the fuel cost hike caused by some internal factors also plays a big role.
Let’s delve into the primary reasons behind this upward trend.
1. IMF-Driven Subsidy Removals
One of the most significant factors influencing petrol prices is the removal of fuel subsidies, a condition set by the International Monetary Fund (IMF) for securing financial assistance. These subsidies, initially introduced to alleviate the financial burden on the public, have been gradually phased out to reduce the fiscal deficit.
For instance, in 2022, in order to get funding from the IMF, Pakistan decided to phase out fuel subsidies, aiming to both slim the fiscal deficit and win crucial support from the IMF.
The government’s pledge to implement these reforms has resulted in fuel prices rising directly, as the expenses that were previously covered by the state are now handed over to the consumers.
2. Currency Depreciation
The Pakistani rupee has lost much of its value compared to major currencies, especially the US dollar. When the value goes down, it costs more to import crude oil, which is usually priced in dollars. Hence, oil marketing companies raise local fuel costs to take into account the high import prices.
As a case in point, the government reported in 2023 that alongside a 43% depreciation of the currency, a dramatic rise in gas prices by 840% and electric tariffs by more than 110% were the major causes of unprecedented inflation that had undermined the purchasing power and standard of living of many Pakistanis.
3. Geopolitical Tensions
International conflicts like the ongoing Israel-Iran tensions have made it hard for neighboring countries to get fuel, and in this way, they have affected Pakistan indirectly. Balochistan, a province in Pakistan, is heavily dependent on the import of fuel from overseas, that is, Iran. A lack of fuel supply in Iran due to geopolitical tensions has led to a shortage of fuel in this area, which, in turn, has raised the fuel crisis in the country.
These interruptions in the supply chain contribute to the increase in fuel prices, as the country selects alternative sources, which are mostly more expensive, to fulfill its energy requirements.
4. Global Oil Market Trends
Even though oil market trends are significant, local factors have a great impact on oil prices in Pakistan as well. Changes in the price of oil in the international market are a major factor impacting oil imports.
For instance, in July 2025, the prices of petrol and high-speed diesel were set to rise due to increased global oil prices and import premiums. Often, despite a decrease in oil prices in the global market, the benefits are almost completely offset by domestic challenges, which leads to fuel prices remaining very high in Pakistan.
5. Taxation and Levies
The government imposes many kinds of taxes and levies on petroleum products, and these make up a major portion of the retail value. In July 2025, the government implemented a carbon levy of Rs2.50 per litre on fuel, and changed the petroleum development levy (PDL) on gasoline to Rs75.52 per litre.
These taxes are designed to raise money for the government, but they are also the direct cause of the increase in fuel prices, placing a higher burden on consumers.
6. Inflation and Cost of Living
The combination of subsidy removals, currency depreciation, geopolitical tensions, global oil market fluctuations, and taxation has resulted in the escalation of inflation.
By the end of August 2023, inflation in Pakistan had hit 27.4%, which, in turn, made the cost of living very expensive. Higher fuel prices put a strain on the inflation scenario, as they indirectly affect the entire cycle of business activities, pushing the prices of goods and services higher and higher.
Conclusion
The issue of rising petrol prices in Pakistan is not a simple problem but rather a complex one that is significantly affected by both domestic policies and international factors. While global oil market trends do have some influence, the ups and downs of Pakistan’s fuel prices are more strongly affected by internal struggles like IMF-driven subsidy removals, currency depreciation, geopolitical tensions, taxation, and overall inflation.
To tackle these problems, it would require comprehensive economic reforms, well-thought-out planning at the national level, and good relations with other countries to help stabilize the economy and ease the financial burden on the people.