Can fuel prices be kept down?

The US-Israel-Iran war will make nonsense of the government’s promise to freeze prices

The continued closure of the Hormuz Strait has led to a continual rise in oil prices, going to $106 per barrel on Thursday, up from Wednesday’s $102, itself a fall from Tuesday’s close of $104. The decline was because of the report that Iran and the USA had exchanged proposals to end their conflict, while the increase was because the proposals did not seem to be going anywhere. This is a particularly nerve-wracking time to be responsible for oil prices in a Third World importer, because the uncertainty does not allow any certainty over what can be promised and what cannot. The government had made one big jump in petrol and diesel prices when it first switched from a fortnightly review, but has kept their prices unchanged in the next two reviews.

However, the increases in the prices of jet fuel and kerosene have shown that the government may not have enough patience to wait for peace.

In the meantime, the government is absorbing Rs 175 per litre in diesel costs and Rs 75 per litre in petrol costs, thus using up the money set aside for subsidy faster than usual. The government has taken a number of measures to save money, which it has pledged to divert towards the subsidy. Another scheme the government intends to try is to make the subsidy available only for fuel going into two- and three-wheelers. The subsidy will be available by downloading an app, and the petrol pumps will have to buy phones with the app. This idea was shot down previously by the IMF, and it is still likely that there will be numerous attempts to defraud the government, both by pump owners and vehicle owners. The incentive for fraud will be created by the exclusion of four-wheelers owners from the scheme, who will face a massive rise in the fuel price.

The government is trying its best to carry on normally in abnormal times. It is actively pursuing the only real solution to its problem that it has, which is the cessation of hostilities and the consequent reopening of the Hormuz Strait. Pakistan does not have any petrol or diesel difficulties through April, but afterwards there might well be problems. Its offer to host peace talks does not yet have any takers, but it shows that efforts are in the right direction.