Global oil giants set to gain as Pakistan considers deregulating petroleum prices

Pakistan is currently working out the details of a possible deregulation of petroleum prices. As things stand, it is the government that determines the fuel prices every fortnight. However, deregulation would mean the prices would no longer be directly determined by the government, bringing an end to petroleum politics.

Several international oil companies are operating in Pakistan. If the deregulation goes ahead, it would open the doors for higher profits and better protection against smuggling.

The reason behind the deregulation

Pakistan is currently going through an economic crisis caused by inflation and other fiscal challenges. The government is trying to bring some stability to the oil market to attract foreign investment as well as benefit consumers.

Fuel prices in Pakistan fluctuate with international oil prices. When they’re down, the sitting government takes credit for providing cheaper fuel to the people. When they’re high, the same government blames the international oil market for the prices.

No government tries to bring efficiency to the market, where market participants are often forced to take extreme measures to protect their business.

For instance, many companies that operate around the western border of the country do so in the presence of a huge black market where fuel is imported from Iran and Afghanistan. This fuel is cheaper and tax-free, so it suits both the sellers and buyers, causing regulated oil companies to lose business.

New opportunities for global oil companies

Deregulation is intended to make it an even playing field for all market participants. Here’s how it can help the international companies operating in Pakistan.

Relaxed rules and less political intervention is likely going to encourage foreign players to improve their infrastructure in Pakistan. Foreign investors have always been reluctant to invest in Pakistan because of the political influences in each sector of the economy. While some companies benefit from this, some also lose business.

A more competitive environment will ensure businesses can succeed not on their political connections but on their better business practices.

The move will also help these companies set long-term goals in the country by setting up partnerships that can last years. These partnerships, without any political interference, have the potential to last long, which will in turn bring more stability to the sector.

A competitive pricing mechanism will also help companies better manage their supply chains. Pakistan is the 5th largest country in the world and fuel consumption, which is mainly based on imported fuel, is quite high. A lot of oil comes into the country and the ability to generate massive profits from it will now improve.

What does it mean for consumers?

The move is good for oil companies, but not necessarily good for the public. This won’t necessarily mean they pay more than they do now. However, even if they have to pay more, some stability in the sector will be welcomed both by local dealers as well as the public.

The only question that remains unanswered is how well this new policy is implemented. Government policies can change overnight in the country and it will take them some time to work out the details of this move.

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