The year 2018 was no different for Pakistan since there was surge in the oil import bill despite the lower international prices. On the one hand, increase in the use of oil indicates economic activities, however, on the contrary, it burdens the country with the unaffordable liabilities. There was spike in Pakistan’s oil import bill during the first five months of the current fiscal year. $6.54 billion in the first five months is evident of the fact that by the end of this fiscal, Pakistan might incur oil import bill in the range of $15 billion, to say the least. How would that impact the current account deficit of Pakistan? The country is still reeling from the last fiscal’s current account deficit worth $18 billion. Pakistan’s exports have stagnated, however, the oil import has witnessed an ever-increasing trend which substantiates the argument that Pakistan has become a consumption-oriented economy rather than an export-oriented economy.
During Prime Minister Imran Khan’s recent visit to Saudi Arabia for the Future Investment Initiative, the kingdom graciously offered deferred oil payments worth $3 billion, a desperately-needed support. This would help lower the burden of the balance of payments crisis to some extent.
There are good news for the economy of Pakistan in 2019 i.e. oil prices would remain subdued by virtue of multifarious reasons; some of them being the spat among Organization of Petroleum Exporting Countries (OPEC) members, alteration in the dynamics of influence as OPEC no more wields power the way it used to have since its founding in 1960, the political and trade rift between the USA and China, continuity of import of Iranian oil by some big economies such as Japan and India despite the US sanctions as well as the oil glut as being perceived today.
After the sanctions imposed by the US on Iran, there were predictions of three digit crude price however that has not transpired and there is no further sign of such thing in 2019. Brent crude fell as low as $49.93 recently and the US crude traded at $44.31. There are predictions by the oil industry experts that crude oil would trade between $50 and $53 a barrel in 2019 far lower than $86 a barrel at the beginning of 2018.
The energy-rich Arab nation of Qatar is going to withdraw from OPEC, the non-OPEC Russia has got a sway on the global crude dynamics and the United States has become the world’s top oil producer. This leaves the international market with market-oriented approach which calls for the demand and supply theory benefiting the non-oil producing countries such as Pakistan.
Pakistan’s energy mix strategy has not worked as intended. The heavy reliance on imported oil would prove detrimental to the fragile economy. It is high time that decisions regarding indigenous resources be taken on priority to lessen the import bill along with the energy mix strategy which needs to be revisited. Energy import decisions require prudent work-out.
Once the Turkmenistan-Afghanistan-Pakistan-India Pipeline (TAPI) is operative, Pakistan may benefit to the hilt. The 1,800km-long TAPI pipeline starts from the Galkynysh gas field in Turkmenistan, passes through Herat and Kandahar in Afghanistan, moves through Pakistan via Quetta and Multan and culminates at Fazilka in India. This project would not only help Pakistan reduce its energy import bill but also help all four stakeholders deepen political and economic ties. Owing to the would-be success of TAPI, China has formally approached the Pakistani authorities with a proposal for a China-Turkmenistan pipeline that is to cross several Central Asian mountain ranges. This would be another milestone for the economic prosperity of Pakistan and would augment the value of the strategic location of our country and leave positive impact on the energy import bill of Pakistan.
In the meantime, Pakistan’s economic managers need to find proximate economical solution to the skyrocketing energy import bill which to great extent has undermined the economic stability of the country.