Another oil crisis.

PAKISTANIS recently witnessed a repeat of the 2015 petroleum shortage. The reason was, once again, the falling global prices and the attempt by the oil industry to avoid inventory losses. The difference this time was that the crisis developed over a period of time, persisted too long and saw a far poorer response from the government. There was no sign the authorities concerned, regulators and market players had learnt any lesson from the January 2015 crisis.

It also transpired, meanwhile, that the supply chain had always been dependent on smuggling - by some companies and dealers - from Iran with around 5,000 tonnes daily imports or 150,000 tonnes monthly supplies.

As the Pakistan-Iran border was closed more than three months ago, the shortage started to build up. According to an official estimate, Pakistan is losing about Rs300 million per day (Rs110 billion per annum) on account of sales tax and petroleum levy owing to the smuggling of petrol, diesel and liquefied petroleum gas (LPG) from Iran.

The oil industry always tends to minimise losses when prices fall and maximise inventory gains as they move upwards. Businesses rarely follow principles, but the repeat crisis this year confirmed the governance structure is no better than it was five years ago.

The oil industry had slowed down its imports and local production as the price decline hit the market in December-January. But red flags were already up when the coronavirus led to lockdowns by the end of March and consumption dropped. The wheat harvest was just around the corner when local refineries started to close down for limited offtake by oil marketing companies (OMCs).

It was quite clear by the end of March that OMCs were not maintaining mandatory stocks for the 20-day consumption cover as per the rules and licence conditions. The strategic reserves necessary for security purposes had already been compromised. The supply chain disruption was nationwide and affected all major cities and towns in Punjab, Balochistan, Azad Jammu and Kashmir and Gilgit-Baltistan. Khyber Pakhtunkhwa officially said its 77 petrol stations had completely dried out.

By the first half of April, all stakeholders were fully aware of the initial shortages. The Oil and Gas Regulatory Authority (Ogra), the Petroleum Division and the oil industry were making friendly communications to show file work.

Ogra asked the director general of oil (Petroleum Division) to enforce its decisions on the industry to arrange...