Rising oil prices jolt Pakistan's fragile economy

• Pakistan imports over 85% of crude via Hormuz.
• Fuel prices raised 20% to curb hoarding.
• Farmers fear rising diesel costs before harvest.

Pakistan imports more than 85% of its crude oil from Saudi Arabia and the United Arab Emirates through a single maritime route via the Strait of Hormuz, and the escalating conflict in the region has disrupted that passage, further destabilising the country's already fragile economy, The News reported, citing The New York Times.

Farmers say they are struggling to cope with rising fuel costs ahead of the harvest season, while some schools are due to shift online on Monday. With nearly half of Pakistan's 250 million people living in poverty, according to the World Bank, many children lack access to a laptop, tablet or reliable internet. Ahead of Eid ul Fitr, many families are also cancelling trips to their hometowns, dimming what is usually a festive period marking the end of Ramadan.

"Pakistan is already bankrupt and surviving loan by loan," said Kaiser Bengali, a Pakistani economist, referring to the loans that the South Asian nation has received from the International Monetary Fund. "Any prolonged disruption could topple its economy."

Surging energy costs have choked the economies of megacities and rural areas across South Asia, where many live on daily wages with little to no savings to cushion sudden rising costs.

In India, some restaurants have removed slow-simmered dishes from their menus to limit the consumption of cooking gas, and one city has suspended gas-fuelled cremations. In Bangladesh, universities have closed to conserve electricity and reduce transportation needs. In Nepal, the government plans to ration cooking gas.

Pakistan has been hit especially hard. Nearly all of its fuel arrives through the Strait of Hormuz, a route that is now being strangled by Iran. At least 16 ships, including oil tankers and commercial vessels, have been attacked in the Persian Gulf since late February. Tanker traffic has slowed, forcing ships to remain docked in the port city of Karachi, Pakistan's economic hub and a stopping point for many of those tankers.

With its supplies cut off, the Pakistani government raised fuel prices on March 6 by 20% in an effort to stop hoarding — one of the world's highest increases since the beginning of the US-Israeli war in Iran.

According to the NYT, Rising costs have badly hurt the farmers and daily labourers who drive the bulk of Pakistan's economy.

Agriculture contributes over 23% of gross domestic product and employs 37% of the labour force. Farmers in Pakistan's heartland, who are preparing for the spring harvest, said rising fuel prices would raise the cost of running the machinery to plough fields and the trucks to take grain to market.

"The use of tractors and other agricultural machinery is unavoidable at most stages of cultivation and harvesting, and these largely run on diesel," said Aamer Hayat Bhandara, a farmer from the Pakpattan district in Punjab, Pakistan's most populous province and its breadbasket.

Surging prices have also hit people in cities, including taxi drivers and anyone who commutes to work in diesel-powered rickshaws, the NYT reported.

Muhammad Roshan, a rickshaw driver in Rawalpindi, said he was upset about the government's response. "They could have gotten oil from Russia," he said. "Why haven't they explored that opportunity?"

With its economy hurting, Pakistan has also walked a fine diplomatic line. It has tried to strengthen ties with the Trump administration and has not condemned the United States for its strikes on Iran. Its economy is heavily reliant on the Arab states in the Gulf for oil and natural gas, as well as remittances from overseas workers. But Iran is its neighbour, and about 15% to 20% of Pakistan's population shares Iran's Shia faith.

The Pakistan government has asked Saudi Arabia to supply oil via its ports on the Red Sea as an alternative. Pakistan’s energy minister told Reuters on Thursday that he hoped domestic sources of electricity production, including solar, could help cushion supply disruptions for liquefied natural gas.

Pakistan has tried to address oil and gas shortages with domestic measures, including encouraging schools to move online, cutting back on official trips and trimming the workweek to four days.

But economists say trimming the workweek, if carried out, is likely to hurt working- and middle-class Pakistanis who rely on daily wages.

The rising costs are also likely to taint Eid, usually one of the year's busiest retail periods.

"There is no such rush in the markets," said Shabbir Ahmed, a clothing trader in Karachi. His customers, he said, are saving their money for essentials.

Ali Akbar, who works for a real estate company in Islamabad, the capital, is looking to cut down on growing expenses.

Akbar, who said he made $400 a month, plans to postpone a homecoming trip to celebrate Eid with his parents and may move his two children to a school within walking distance. Monthly transportation costs for them have already risen to $48 from $36 over the past week.

The school is scheduled to go online for a few days next week. But Akbar said he could not afford to buy a laptop or tablet, so his children will have to miss it.