Why This System Exists — And Why It’s Breaking Now
To understand why this distortion exists, one must step away from slogans and look at refinery configuration realities, because Pakistan’s refining infrastructure is dominated by hydroskimming plants, which inherently produce a high yield of diesel but also significant volumes of low-value furnace oil that often trades at negative margins globally, meaning that without elevated diesel margins, the overall refinery economics collapse and plants either operate at losses or shut down altogether, creating a far more dangerous scenario involving supply disruptions and increased reliance on imported finished fuel.
This is where the policy intent becomes clear.
The government’s pricing model effectively allows diesel margins to subsidize structural inefficiencies, ensuring that refineries remain operational, local throughput is maintained, and foreign exchange outflows are contained by importing crude instead of finished products, which in normal market conditions acts as a stabilizer for both energy security and the current account deficit, but in abnormal conditions—such as those triggered by geopolitical shocks like the Iran conflict—it transforms into a blunt instrument that amplifies global price distortions instead of cushioning them.
Global Shock Meets Rigid Policy — The Perfect Storm
The UAE example you referenced is not an outlier but a signal, where diesel prices surged by over 70% within a month due to widening spreads between crude and refined products, a phenomenon driven by supply chain disruptions, sanctions, and logistical bottlenecks, and because Pakistan’s pricing model is directly tethered to these international benchmarks without adaptive mechanisms, the shock is transmitted almost one-to-one into the domestic market, regardless of the fact that a majority of the diesel is refined locally at significantly lower input costs.
This is the critical failure.
The system was designed for stability, not for shock absorption, and when exposed to extreme spreads, it does exactly what it was coded to do—overcharge consistently.
