Pakistan refineries are under severe financial pressure as a dispute over the government’s pricing formula and rising import costs continues to deepen. The sector, which had earlier agreed to a pricing mechanism linked to international crude benchmarks, is now warning of unsustainable losses.
Industry officials say Pakistan refineries are struggling due to what they call an “artificial” cap on profit margins. The government has fixed the diesel crack spread at $41.5 per barrel, but refineries argue this figure does not reflect real market conditions.
They claim the actual cost of crude oil is much higher once freight charges, premiums, and war risk insurance are included. These additional expenses, they say, are not properly accounted for in the current pricing model.
Pakistan refineries also point to a 5% customs duty on crude imports, which they say further distorts the cost structure. While a small portion is recovered through a duty mechanism, most of the burden remains with the industry, reducing already tight margins.
Market data shows a clear gap between official pricing and real conditions. In April 2026, the crack spread stood closer to $60 per barrel, but compensation is being calculated at the lower capped rate of $41.5.
This mismatch has created heavy financial losses. In April alone, Pakistan refineries collectively reported losses of around Rs24 billion. Weekly losses continued throughout the month, showing a steady financial decline across the sector.
Officials warn that if the situation continues, Pakistan refineries may struggle to maintain normal operations. This is a sharp reversal from earlier in the fiscal year when the industry had shown signs of recovery after years of losses.
Some refineries had even posted profits in March, but those gains quickly disappeared in April as margins collapsed. Industry sources say profitability has now dropped to near break-even or negative levels for many operators.
Refineries argue that they accepted lower margins in the national interest to help stabilize fuel prices for consumers. However, they believe the current structure has gone too far and is now harming the sector’s survival.
They also highlight that global conditions have pushed import costs higher. Rising freight charges, insurance premiums, and geopolitical risks have increased the cost of diesel imports significantly in recent months.
Pakistan refineries say that without a revision in pricing and relief measures, the industry could face long-term damage. They stress that the sector plays a key role in ensuring fuel supply and national energy security, especially during periods of global uncertainty.