Pakistan may end the petrol and diesel price freeze as jet fuel and kerosene surge, pushing airfares up and raising IMF-linked fiscal pressure. Targeted relief for bikers is under review.
Why the Government Is Rethinking the Petrol and Diesel Freeze
Pakistan’s federal government is considering ending the freeze on petrol and high-speed diesel prices after weeks of holding them steady during Ramadan. The main problem is that other fuel prices — especially jet fuel and kerosene — have jumped sharply and are now far out of line with global rates. Officials say the gap between local and international prices is widening, and keeping a broad freeze is becoming costly.
During the freeze period, the state absorbed higher import costs instead of passing them to consumers. That approach can temporarily protect households from sudden price shocks, but it also strains the budget. Officials warned that delaying adjustments can build inflationary pressure later, because when prices are finally raised, the jump can be bigger and more disruptive.
Another factor is Pakistan’s pending programme reviews under the International Monetary Fund (IMF). When fiscal pressure increases and external financing depends on policy targets, broad price controls become harder to defend. In this setting, the government is exploring a shift from a general freeze for everyone to a more targeted support model that focuses on lower-income users.
What the Price Data Shows: Jet Fuel and Kerosene Jump First
Recent official price sheets show aviation fuel and kerosene rising fast. Jet fuel (JP-1) was increased by Rs. 84 per litre, around 22%, to Rs. 472 from March 21. Kerosene rose by about Rs. 71 per litre, around 20%, to Rs. 429 within a week. Since early March, the reported surge is even bigger: jet fuel up nearly 150% and kerosene up about 127%.
This sharp increase reflects volatility in global energy markets linked to regional conflict risk, including the US–Israel war on Iran. When global supply routes feel threatened, prices can spike quickly, even if physical supplies do not immediately run out.
By contrast, petrol and diesel were kept frozen after an earlier increase of Rs. 55 per litre each. The government reportedly allocated around Rs. 69 billion in subsidies to offset subsequent adjustments. Officials also said the state is currently absorbing roughly Rs. 175 per litre on diesel and about Rs. 75 per litre on petrol to maintain current retail prices.
That “absorption” is effectively a fiscal cost. When the state pays the difference, it reduces room for other spending and raises pressure to either borrow more or cut costs elsewhere. This is why officials are signalling the freeze may not be sustainable for much longer.
Targeted Subsidies for Two- and Three-Wheelers: What It Could Mean
Alongside the possible end of the freeze, officials are looking at targeted subsidies aimed at owners of two- and three-wheelers. This is a key policy shift. Instead of keeping prices low for everyone, targeted relief tries to protect the people most likely to be hurt by higher fuel prices, while reducing the overall subsidy bill.
In Pakistan’s cities and small towns, motorcycles and three-wheelers are often the backbone of daily mobility and income. Many low-income workers rely on a bike for commuting, deliveries, or small business errands. A targeted subsidy could help maintain affordability for these users even if petrol and diesel prices rise for the wider market.
A special cabinet committee formed by Prime Minister Shehbaz Sharif reviewed the growing gap between domestic and international fuel prices and discussed replacing broad controls with targeted support. The design details will matter a lot. A workable system would need clear eligibility rules, simple verification, and minimal friction at the pump to avoid long lines and confusion.
If the government uses a digital approach, it may link benefits to vehicle registration and identity information, then apply a limit or discount to verified users. If the design is too complex, the policy could face backlash. If it is too loose, it may leak benefits to unintended users and reduce fiscal savings.
Impact on Air Travel and Exports: Costs Are Already Spreading
The effects of rising jet fuel prices are already visible in air travel. Aviation officials estimate ticket prices have climbed by Rs. 10,000 to Rs. 15,000 on domestic routes and by Rs. 30,000 to Rs. 40,000 on international travel as airlines pass on higher fuel costs. Fuel is typically around 30% to 40% of airline operating costs, so when jet fuel rises, airfares usually follow.
The impact is being worsened by disrupted regional airspace. Longer flight routes mean more fuel burn, longer crew time, and higher operating costs. Since the escalation of tensions in the Middle East, around 325 flights by Pakistani airlines — including roughly 200 operated by Pakistan International Airlines — were reportedly cancelled. Even when flights are not cancelled, disruptions can reduce schedule reliability and push airlines to add surcharges.
While base fares may remain unchanged on paper, airlines have introduced fuel surcharges ranging between $10 and $100 on some routes. Passenger traffic from the Gulf has weakened, although travel from Saudi Arabia and the United Arab Emirates is said to be relatively stronger.
Exporters are also feeling pressure, especially those shipping perishables by air. The Pakistan Fruit and Vegetable Exporters Association said ground handling companies imposed additional charges of Rs. 50 per kilogram on air cargo shipments. For exporters of fresh produce, time and temperature control are critical, so air cargo is often unavoidable. Higher charges can quickly squeeze margins and make Pakistani exports less competitive in fast-moving markets.
What to Watch Next: Supply, Policy Timing, and Inflation Risk
Authorities say petroleum inventories remain adequate, supported by secured imports for March and April and steady refinery output, with supply chains functioning normally nationwide. That is a reassuring signal for availability, but it does not solve the pricing issue. Adequate stock can keep pumps running, yet the financial cost of holding prices down can still become too high.
If the government ends the freeze, the timing and size of the adjustment will shape the public reaction. A gradual increase can be easier to absorb, but it may still fuel inflation through transport and logistics costs. A sharp increase reduces the subsidy burden quickly, but it can trigger immediate pressure on household budgets and business expenses.
The move toward targeted subsidies suggests policymakers want a middle path: reduce the fiscal drain of broad price controls while still protecting the most vulnerable transport users. For households, the practical step is to plan for possible changes in pump prices and watch official announcements on any biker-focused relief scheme, including registration rules and daily limits.
For businesses, especially exporters and logistics operators, the focus should be on how quickly higher fuel costs pass through to freight rates and whether additional aviation charges continue. In the weeks ahead, three signals will matter most: the government’s decision on the freeze, the final design of targeted subsidies, and the direction of global oil and regional risk headlines that drive price volatility.
