Unchanged for now

How long can the government hold the oil price?

Prime Minister Shehbaz Sharif took good care to announce good news himself, while leaving the responsible minister the bad. He personally announced that the petrol and diesel prices would be left unchanged, even though the global oil price had climbed further, in an address to the nation on Friday. A week before, Petroleum Minister Ali Pervaiz Malikk had had the unwelcome task of announcing a record price increase. Mr Sharif’s good news was thus only relative, not absolute. The really good news would be a decrease in the price. That will only be possible if the Hormuz Strait is once again reopened for shipping, and that in turn requires the Iran-USA-Israel war to end. Iran is at the moment defiant, holding a mass Quds Day rally in Tehran on Friday, braving US bombs which killed one woman. The USA, meanwhile, is pouring more forces in the theatre, including Marines and warships, which might hint at ground action. Three ships are headed from Japan, carrying a Marine Expeditionary Unit of 2500 Marines.

International oil prices have gone above $100 per barrel, which is about $30 more than before the war. At the same time, the closure of the Hormuz Strait is estimated to have cut global oil supply, such that demand can only be cut to match it if the price goes to $150. The Pakistan government’s ability to remain committed even to the current oil price will remain doubtful. It will be running out of money at that point, and the prospects of inflation due to monetary expansion may exceed those of just increasing the pump price. This, of course, does not factor in the reaction of the IMF, which will continue to press for the preservation of its supply-side prescriptions.

The government’s efforts for a swift end to the war must be seen in this context. The oil price hike is already showing its effects, not just in the transport fares and freight charges for both road and rail, but also in the Sensitive Price Index, which has gone up 1.89 percent in the week ending March 11, which is quite a high rate. The State Bank has not increased interest rates, but it has not decreased them either. The government should prepare for the long haul,and avoid making promises that it probably will not be able to keep.