The acceleration in international geopolitical tensions over the Ukrainian crisis sent the international Brent oil price surging by 5% to sevenand-half-year high at $95 per barrel on Friday. If Russia invades Ukraine, as being speculated by the US, then the petrol price would spike to Rs200-225 per litre in Pakistan. The next three to four days are very critical for the world, including Pakistan.
“If Russia attacks Ukraine, then oil price is expected to shoot to $125 per barrel in the global markets,” said AA Gold Commodities Director Adnan Agar while speaking to The Express Tribune. “If this happens, the local petrol price would spike to Rs200- 225 per litre in Pakistan.” The increase in oil price would multiply inflation reading by a manifold and badly hit the global and domestic economies. “The world is still in the phase of recovery from the Covid-19 pandemic,” he said. “The war, if it takes place, would turn global economic conditions similar to 2008 global financial crisis.”
Pakistan, which has recently implemented stringent economic conditions agreed with the International Monetary Fund (IMF) under its $6 billion loan programme, would be in deep trouble in such an event. Pakistan imports wheat from Ukraine therefore prices of food items may also go up in the country. “The latest increase of 5% in the Brent oil price in international market has already widened Pakistan’s oil import bill by $1 billion,” Arif Habib Commodities CEO Ahsan Mehanti estimated.
It is not just about the Ukrainian political crisis. Irrespective of whether the crisis worsens or improves, the international oil price is anticipated to hit $125 per barrel by the end of June 2022. “JP Morgan Global Equity Research has projected the international oil price to be around $125 per barrel in 2022 and at $150 per barrel in 2023,” he said. He said that the global research house made the prediction at the outset of December 2021 when there was no geopolitical crisis like the Ukrainian one at present.
The possible increase in international oil price may inflate Pakistan’s oil import bill to a critical level. “The rupee, however, would remain stable instead of becoming volatile against US dollar and other currencies in the aftermath of a likely surge in imports,” he said. The US has announced to unfreeze Afghanistan’s foreign exchange reserves worth $7 billion, while Pakistan has allowed Kabul to perform trade activities in Pakistani rupee. “This development would support stability in local currency going forward,” Mehanti said. The domestic currency is hovering at around Rs175 against the US dollar these days in the backdrop of resumption of the International Monetary Fund (IMF) loan programme in the current month.
The rupee hit all-time low of Rs178.24 in the recent past, according to the State Bank of Pakistan (SBP). The world, especially Europe, is trying its best to defuse tensions over Ukraine between Russia and the US, because Europe imports around 50-60% gas for its consumption from Moscow. Besides, Russia has said time and again that its military buildup over its border with Ukraine is not aimed at attacking and invading Ukraine.
Agar said that if the international political tensions did not defuse over the next three to four days, they might mount selling pressure on the global stock markets, including the Pakistan Stock Exchange (PSX), and lift gold price further. The gold price surged Rs1,150 to Rs126,450 per tola (11.66 gram) in Pakistan on Saturday in line with the increase in price of the commodity at world markets in the wake of geopolitical tensions.