Pakistan's government is weighing a return to targeted fuel subsidies within days if Middle East tensions persist, even as it pushes forward with a politically contentious deregulation of petroleum prices. The move, disclosed by Petroleum Minister Ali Pervaiz Malik, underscores the delicate balancing act between protecting consumers from price shocks and adhering to IMF-mandated fiscal discipline. Main Developments Minister Malik told journalists after a Senate Standing Committee on Petroleum meeting that the government would revive the targeted subsidy mechanism—initially funded with Rs130 billion by the prime minister—if renewed US-Iran hostilities do not subside within days. He emphasized that the prime minister and the entire government understand the difficulties faced by ordinary Pakistanis. The minister defended the recently introduced daily petroleum pricing mechanism, calling it a "transparent system" that gradually transfers international price impacts to consumers, avoiding the major shocks associated with weekly or fortnightly adjustments. He argued that with Pakistan under an IMF programme and limited financial resources, recovering legitimate fuel costs from consumers is the only viable option. Read also: Pakistan Targets $100bn Exports by 2035 as PSDP Overshoots During the Senate panel meeting, chaired by Senator Umer Farooq, Ogra Chairman Nabeel Awan explained that prices are calculated using a seven-day rolling average of Platts international benchmarks. This mechanism, he said, protects consumers by spreading the impact of fluctuations over a week, minimizing sudden price shocks, especially amid the US-Iran conflict. Senators offered mixed reactions: Senator Amir Chishti appreciated the daily pricing system, while Senator Saifullah Abro described it as "slow poison." The panel expressed serious concern over the high tax burden on petroleum products, and dealers' representatives highlighted operational difficulties caused by frequent price revisions. Background The current pricing overhaul follows years of fortnightly adjustments that often resulted in sharp, unpredictable price swings. The government, under Prime Minister Shehbaz Sharif, has sought to "depoliticise" the process by empowering Ogra, the independent regulator, to set prices based on international market movements. Initially, the prime minister provided Rs130 billion in fuel subsidies before bringing provincial governments on board under the targeted subsidy mechanism. This approach was designed to shield the most vulnerable from price shocks without straining federal finances. Efforts to end the US-Iran conflict are being led by Chief of Defence Staff and Chief of the Army Staff Field Marshal Asim Munir and Prime Minister Shehbaz Sharif, as the minister noted that real relief would only come when global oil prices fall. Why It Matters The reintroduction of subsidies would signal a shift in fiscal priorities, potentially straining Pakistan's IMF programme, which typically discourages ad-hoc subsidies. The decision could also affect the government's credibility in maintaining a transparent, market-based pricing system. For consumers, the daily pricing mechanism aims to smooth out price fluctuations, but the high tax burden remains a point of contention. Dealers, meanwhile, face operational challenges from frequent revisions, which the Senate committee has directed Ogra to address through stakeholder engagement. The broader implications extend to the petroleum sector's future: deregulation could dissolve the inland freight equalisation margin (IFEM) pool, which currently ensures uniform fuel prices nationwide. This would have significant consequences for consumers in remote areas. What's Next The government committee reviewing the pricing mechanism, headed by the petroleum minister, has appreciated the daily formula's transparency and volatility reduction. Sub-committees presented findings, and KPMG submitted a report comparing regional pricing and taxation structures. Decisions were made to hold oil marketing companies (OMCs) responsible for end-to-end digitisation of the supply chain, following the prime minister's December directive. The moratorium on new OMCs and the IFEM pool's future are under review. The Finance Division, in consultation with the Federal Board of Revenue (FBR) and the Petroleum Division, will present a report on the windfall tax at the committee's next meeting. A comprehensive roadmap for petroleum sector reforms is expected to emerge from continued deliberations.