The question is increasingly being asked with urgency: why does Pakistan not import “cheaper” oil from Iran?
At first glance, the argument appears both logical and economically appealing. However, the reality is far more complex. Pakistan’s decision is shaped by a combination of economic constraints, diplomatic considerations, financial systems, and strategic priorities. The issue is not merely about price-it is about navigating a deeply interconnected global system. The most significant barrier remains U.S. and Western sanctions on Iran. While there have been brief and limited relaxations, these are temporary and uncertain. Entering into long-term energy agreements under such conditions would expose Pakistan to serious diplomatic and economic risks. Unlike larger economies such as China or, to some extent, Russia, Pakistan does not possess the economic resilience to withstand secondary sanctions. More importantly, Pakistan is integrated into the global financial system, particularly the SWIFT network, while Iran has largely been excluded from it. This creates a fundamental payment barrier-any attempt to conduct transactions could expose Pakistani banks to punitive actions.
Another key challenge lies in Pakistan’s domestic refining capacity. Much of Pakistan’s refining infrastructure is outdated and not fully compatible with Iranian crude oil grades. Similar issues have been observed with Russian oil.
If sanctions on Iran are lifted in the future, Pakistan should seriously consider expanding energy cooperation. This could include establishing refining capacity for Iranian crude and leveraging Gwadar’s deep-sea port for regional energy trade.
Additionally, the Iranian oil that enters Pakistan through informal channels is often unrefined and contains impurities. Experts warn that such fuel can damage engines and reduce efficiency, making it unsuitable for large-scale, regulated consumption. Pakistan already imports oil from Saudi Arabia, the United Arab Emirates, Kuwait, and Qatar under highly favourable financial arrangements. These include deferred payment facilities, which significantly ease Pakistan’s balance of payments burden. For instance, Saudi Arabia has extended arrangements allowing Pakistan to import oil worth approximately $100 million per month on deferred payments. Such facilities are not currently available in Iran, which itself faces severe financial constraints. Beyond oil, Gulf countries provide critical financial support to Pakistan. Saudi Arabia has deposited around $2 billion in Pakistan’s accounts, while the UAE has contributed an additional $1 billion. These inflows help stabilise Pakistan’s currency and broader economy.
Diverting oil trade toward Iran at the expense of these relationships could jeopardise this financial backing-an outcome that would carry far greater economic consequences than the marginal savings from cheaper oil.
Another crucial factor is labour migration. Approximately 5 to 6 million Pakistanis are employed in Gulf countries, sending billions of dollars in remittances annually. These inflows are vital for maintaining Pakistan’s external account stability.
In contrast, Iran hosts a negligible Pakistani workforce. Therefore, the economic benefits derived from Gulf relations far outweigh any potential savings from Iranian oil imports. Pakistan’s commitments under the International Monetary Fund (IMF) program also limit its policy flexibility. Engaging in sanctioned trade with Iran could jeopardise IMF support. Similarly, Pakistan benefits from the European Union’s GSP+ status, which allows preferential access to European markets. Any violation of international sanctions regimes could risk these trade privileges, potentially resulting in losses amounting to billions of dollars.
Trade decisions are not always purely economic; they are often shaped by broader geopolitical realities. Pakistan’s relationships with Saudi Arabia, the UAE, and Qatar extend far beyond energy-they encompass defence cooperation, financial assistance, and long-standing strategic alignment.
Historically, Pakistan has avoided deep strategic alignment with Iran, although future cooperation remains possible. For now, preserving existing partnerships serves Pakistan’s national interest more effectively.
Countries like China import significant volumes of Iranian oil through “shadow fleets”-unregistered tankers operating outside formal regulatory frameworks. These operations involve complex financial and logistical arrangements that Pakistan currently lacks the capacity to replicate.
Pakistan’s oil imports rely on regulated shipping channels, many of which involve international companies. Any attempt to engage in shadow trade would expose these entities to sanctions, making such an approach highly risky and impractical.
Moreover, Pakistan’s economy depends heavily on tax revenues from legal oil imports. Allowing large-scale smuggling would erode tax collection, increase fiscal deficits, and destabilise the economy.
Contrary to popular perception, Iranian oil is not dramatically cheaper. As a member of OPEC, Iran operates within global pricing structures. Estimates suggest that Iranian crude may be only $1 to $2.5 cheaper per barrel than market rates. Given Pakistan’s diversified import mix-sourcing oil from multiple countries-the overall savings from switching to Iranian oil would be marginal and unlikely to significantly impact domestic fuel prices.
It is important to note that Pakistan does import a limited amount of Iranian oil, primarily through informal channels, accounting for roughly 15 per cent of total consumption. If sanctions on Iran are lifted in the future, Pakistan should seriously consider expanding energy cooperation. This could include establishing refining capacity for Iranian crude and leveraging Gwadar’s deep-sea port for regional energy trade.
However, the most promising avenue lies in natural gas. The long-delayed Iran-Pakistan gas pipeline has the potential to transform Pakistan’s energy landscape, particularly for industrial growth in Balochistan and Sindh.
The writer is a journalist, strategic communication and public diplomacy advisor based in Islamabad.