Pakistan stands to gain from sustained decline in global oil prices

Pakistan’s economy is poised to gain significant relief following a sharp decline in global oil prices, a development that could reduce the country’s import bill and ease inflationary pressures.

Crude oil prices fell by 21% during 2025, dropping from $71 per barrel in January to $56 per barrel in December. Over the past three months alone, international oil prices declined by 13%, offering Pakistan, which relies heavily on imported fuel, a rare reprieve.

In the latest episode of On My Radar, Kamran Khan highlighted the economic impact, noting that the sustained drop in oil prices could save Pakistan billions of dollars in import costs and reduce pressure on foreign reserves.

“This is a unique opportunity for Pakistan to stabilize its economy without resorting to new taxes or borrowing,” he said.

Pakistan imports nearly all of its crude oil - including Brent, WTI, and Arab Light - and more than a quarter of its total import bill is linked to petroleum products. In the last fiscal year, of Pakistan’s $58 billion in imports, $16 billion, or 27.5%, were spent on oil.

Analysts say the current decline in oil prices could translate into an annual saving of at least $2.4 billion, or roughly PKR 670 billion, providing a rare boost to the country’s finances.

Global financial institutions project that oil prices could remain relatively low in 2026, with estimates ranging between $53 and $58 per barrel. JPMorgan expects the average Brent price to be $58 per barrel, while Goldman Sachs predicts WTI crude will average $53 per barrel. If these forecasts hold, Pakistan could enjoy a favorable year in terms of its import bill and fiscal pressures.

Cheaper oil is expected to benefit multiple sectors of the economy. Lower petrol and diesel prices reduce transportation and logistics costs, as well as production expenses across industries such as agriculture, textiles, cement, construction, and chemicals.

This, in turn, can ease inflationary pressures, allowing the State Bank of Pakistan to maintain or even reduce interest rates. Analysts forecast that inflation in 2026 could remain between 3% and 4%, creating room for single-digit interest rates.

Historically, fluctuations in global oil prices have had a direct impact on Pakistan’s economy. When prices rise, import bills expand, the rupee weakens, and inflation spikes, often forcing the government to seek loans or aid from international financial institutions. Conversely, falling oil prices offer multi-layered economic relief, improving the balance of payments, stabilizing foreign reserves, and reducing overall inflationary pressures.

Experts caution, however, that the full benefits of low oil prices will depend on how the government utilizes the savings. If the windfall is absorbed by subsidies, discretionary spending, or limited sectoral relief, the impact will be temporary.

But if the savings are directed toward strengthening foreign reserves, stabilizing the exchange rate, investing in alternative energy, boosting export competitiveness, and enhancing Pakistan’s economic framework, the current drop in oil prices could become a transformative opportunity for the country’s economy.