Stability as strategy in an energy crisis
Pakistan faces its third global energy shock in less than two decades, with oil prices rising above $110 per barrel due to geopolitical tensions. The government’s measured response—avoiding subsidies and import restrictions—contrasts with past crises, where short-term fixes worsened economic instability and political fallout.
Pakistan is experiencing its third major global energy crisis in under 20 years, with oil prices surging from around $70 to over $110 per barrel amid geopolitical tensions and disruptions in the Strait of Hormuz. Unlike previous shocks in 2008 and 2022, the government has so far resisted large-scale energy subsidies and import restrictions, signaling adherence to its IMF program. The 2008 crisis began with oil prices doubling between June 2007 and June 2008, triggering a balance-of-payments crisis. Pakistan’s foreign exchange reserves plummeted from over $13 billion to $5 billion, inflation remained in double digits until 2011, and growth stagnated. The government absorbed price hikes through subsidies, but political instability followed, and foreign direct investment dropped by over 20%. The 2022 shock, driven by the war in Ukraine, saw crude oil prices exceed $120 per barrel, inflation hit 20%, and the currency depreciate by 28% by June 2023. Again, subsidies and import controls were used, deepening fiscal risks and leading to the government’s early exit. Both crises exposed the dangers of short-term fixes, which drained reserves and distorted economic incentives. This time, the government has avoided repeating past mistakes by maintaining discipline—avoiding subsidies and import compression—while staying within its IMF program. However, pressures to soften price impacts and impose protectionist measures remain. Experts warn that aggressive monetary tightening or ad hoc tariffs could discourage investment and weaken growth. The lessons from 2008 and 2022 are clear: subsidizing imported energy during price shocks worsens long-term economic strain. A sustainable strategy requires three key actions: maintaining price stability, avoiding excessive import controls, and fostering structural reforms to reduce vulnerability to external shocks.
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