Pakistan could potentially save between $170 million and $340 million in import costs by resuming discounted Iranian crude oil supplies. This possibility follows a temporary easing of US sanctions on Tehran, though commercial success depends on domestic demand for byproducts and technical refinery upgrades.
Why is Iranian crude oil being considered again?
The potential return of Iranian oil comes as US sanctions on Tehran see a temporary easing, reopening doors for discounted supplies. Historically, Pakistan imported Iranian crude at a realized price lower than imports from the UAE or Saudi Arabia, with notable discounts recorded between 2009 and 2012.
Sania Irfan of Topline Securities noted that the country imported nearly $17 billion worth of petroleum products and fuels in 2025. She suggests that if Pakistan imports a significant portion of its total petroleum requirements from Iran at a discount, including freight savings, the economic benefits would be substantial.
What technical challenges do local refineries face?
While local refineries are technically capable of processing Iranian crude, commercial viability remains an issue. A former head of a leading refinery in Karachi told Dawn that Iranian light crude often contains high furnace oil (FO) content. Because the power sector has negligible usage for this fuel, there is currently no significant domestic market for the byproduct.
The economic feasibility also depends on whether Iranian crude prices are pegged to international benchmarks with parity to Arab crude. If no significant discount exists, refining the crude locally is not considered economical, according to the former refinery head.
A significant technical gap exists between Pakistani and Indian refining capabilities. Indian refineries typically utilize deep-conversion units, such as hydrocrackers, hydrocokers, and residue fluid catalytic cracking units. These tools allow them to process a wide range of crude grades into high-value products like petrol and diesel.
In contrast, most Pakistani refineries lack hydrocracker units, with the exception of Pak Arab Refinery Ltd, which operates a mild cracker unit. Without these cracking units, local refineries have historically shifted their “crude recipe” from sour heavy to light and sweet crude to maintain sustainability.
How is Pakistan Refinery Ltd addressing these limitations?
Pakistan Refinery Ltd (PRL) is currently pursuing a Refinery Expansion and Upgrade Project (REUP). This initiative aims to practically eliminate high-sulphur furnace oil and enable the production of Euro V refined products.
According to its quarterly report ending March 31, PRL is also engaged with the government regarding brownfield policy amendments and the restoration of the taxable status of petroleum products. These steps are described as critical for the company’s sustainable operations and the execution of the REUP.
What is the current status of diesel demand and production?
The diesel market is currently experiencing “demand destruction” due to high existing stocks. Diesel sales in May reached 455,000 tonnes, marking a decrease year-on-year and month-on-month.
Production and import figures show the following trends:
- Diesel Production: 4.958 million tonnes in FY25, compared to 3.787 million tonnes during the July-February period of FY26.
- Diesel Imports: 2.037 million tonnes in FY25, compared to 1.239 million tonnes during the July-April period of FY26.
Currently, local refineries are meeting a significant portion of the diesel demand through modifications and changes to their crude recipes, even as they produce diesel at maximum throughput.
Frequently Asked Questions
How much could Pakistan save by importing Iranian crude?
Sourcing crude from Iran could generate import cost savings, assuming the country imports a significant portion of its total petroleum requirements at a discount.
Why is refining Iranian crude currently difficult for most Pakistani refineries?
Most local refineries lack hydrocracker units, which are necessary to process heavy crude without producing high levels of furnace oil. Additionally, there is currently very little domestic demand for furnace oil in the power sector.
What is the goal of the PRL expansion project?
The Refinery Expansion and Upgrade Project (REUP) aims to double PRL’s capacity from 50,000 to 100,000 barrels per day, allowing the production of Euro V products and reducing high-sulphur furnace oil output.
Will technical upgrades in local refineries be enough to change Pakistan’s energy import dependency?
