Recent drone attacks on Saudi Arabia’s largest oil facilities have sparked concerns about their potential impact on Pakistan’s oil import bill. The attacks targeted the Abqaiq and Khurais oil fields, causing substantial disruptions in oil production. Approximately 5.7 million barrels per day, representing about 50% of Saudi Arabia’s total oil output and 5% of global production, have been halted.
Analysts at Arif Habib Limited have highlighted that this significant reduction in oil supply could lead to a sharp rise in global oil prices. They estimate that a $5 increase per barrel in oil prices could add around $1.25 billion to Pakistan’s annual oil import costs. This potential increase in the import bill poses a serious risk of worsening Pakistan’s current account deficit, which is already under strain.
The impact of higher oil prices extends beyond just the import bill. Analysts warn that increased oil prices are likely to exacerbate inflationary pressures within Pakistan’s economy. They project that a $5 per barrel rise could push the base inflation rate, currently estimated at 9.6%, up by 23 basis points for the fiscal year 2024. This rise in inflation may prompt the need for further monetary tightening by the central bank to stabilize the economy.
Moreover, the escalation in global oil prices could trigger tighter international monetary policies. This development may adversely affect Pakistan’s efforts to raise between $2.0 to $2.5 billion through Eurobond and Sukuk issuances. With global financial conditions becoming more restrictive, Pakistan faces additional challenges in securing necessary funding from international markets.
Despite these concerns, there is some relief for Pakistan due to its existing financial arrangements with Saudi Arabia. Pakistan has secured a deferred oil credit facility worth $3 billion annually from Saudi Arabia. This arrangement is crucial for managing the country’s oil import costs. Analysts expect that this facility will remain unaffected by the recent disruptions, given that Pakistan’s oil imports from Saudi Arabia constitute a relatively minor portion (approximately 1.8%) of Saudi Arabia’s total oil production.
Following the attacks, global oil prices saw a dramatic increase of 19% in a single day. In response, the U.S. President announced the release of oil from the Strategic Petroleum Reserves (SPR) and adjustments to oil pipeline operations to stabilize the market. As of today, Brent crude is trading at $65.44 per barrel, down from a peak of $71.05 per barrel, while WTI crude is at $59.17 per barrel, with a high of $61.74 per barrel.
Looking ahead, analysts are closely monitoring official statements from ARAMCO regarding the extent of the damage and the timeline for restoring oil production. International media reports offer varying predictions on how quickly production can be restored, ranging from a few days to several months.
The current situation underscores the importance of vigilant monitoring of global oil market developments. The potential impacts on Pakistan’s economy highlight the need for strategic financial planning and international cooperation to manage the risks associated with fluctuations in global oil prices.
