Islamabad, Pakistan – Consumers in Pakistan are facing a significant increase in the price of kerosene, with a recent hike of Rs40 per litre bringing the cost to Rs358, the highest among all commonly used fuels. This increase, implemented on March 15, 2026, comes as the government moves to manage a complex energy market and subsidize the prices of petrol and high-speed diesel (HSD) for the week ending March 20. The situation highlights the delicate balance between market forces, government subsidies, and the needs of consumers, particularly those in remote areas reliant on kerosene for basic needs.
The price adjustment, announced by the petroleum division of the energy ministry, reflects a broader strategy to absorb potential increases in petrol and HSD costs. Without the Rs23 billion price differential subsidy approved by the Prime Minister, petrol and HSD prices would have risen by more than Rs49 and Rs75 per litre, respectively. This subsidy demonstrates the government’s commitment to stabilizing fuel prices for key sectors, even as it navigates rising global energy costs and domestic economic pressures. The decision underscores the critical role of fuel pricing in Pakistan’s economic stability and the government’s willingness to intervene to mitigate the impact on consumers and businesses.
Kerosene Price Surge: A 90% Increase in March Alone
The latest increase in kerosene prices represents a dramatic shift for consumers, with the fuel experiencing a cumulative rise of 90% from Rs188.87 earlier in March. This rapid escalation has transformed kerosene into the most expensive consumer fuel product, surpassing petrol and diesel. The 12.6% increase on March 14 alone underscores the volatile nature of the fuel market and the challenges faced by the government in maintaining price stability. This sharp rise is likely to disproportionately affect low-income households and those in rural areas who depend on kerosene for cooking, heating, and lighting.
The government’s decision to absorb the price increases for petrol and HSD through a substantial subsidy – totaling Rs23 billion to be paid to oil marketing companies (OMCs) by the Oil and Gas Regulatory Authority (OGRA) – is funded through the newly created ‘Prime Minister’s Austerity Fund’. The Finance Division secured Cabinet approval for the creation of this fund, allocating Rs27.1 billion, with Rs23 billion earmarked for OGRA to cover the price differential claims (PDC) of OMCs. Dawn reports that OGRA will also be responsible for verifying and auditing invoices received from OMCs as part of the payment process.
Historical Context: Kerosene’s Role and Recent Fluctuations
The recent price hikes build upon previous increases, with kerosene prices having risen by almost 70% in the week prior, jumping from Rs130.08 to Rs318.81 per litre. This series of increases signals a significant policy shift regarding kerosene, a fuel once widely used across Pakistan. While traditionally considered “poor man’s fuel,” kerosene has seen declining demand as access to liquefied petroleum gas (LPG) has expanded. However, it remains a crucial energy source for households in remote regions where LPG infrastructure is limited.
Historically, kerosene has also been subject to illicit practices, with reports of unscrupulous elements mixing it with petrol to profit from price discrepancies. The narrowing of the price gap between kerosene and petrol, due to these recent increases, is intended to discourage such practices and ensure fair competition in the fuel market. This move aims to protect both consumers and legitimate businesses operating within the petroleum sector.
Subsidies and Revenue Drivers: A Balancing Act
The government’s decision to maintain stable prices for petrol and HSD, despite market pressures, highlights the importance of these fuels as major revenue drivers. Petrol and HSD account for the bulk of monthly fuel sales, reaching approximately 700,000 to 800,000 tonnes, compared to a mere 10,000 tonnes of kerosene. This disparity in demand underscores the economic significance of keeping petrol and diesel prices competitive. The government continues to levy significant taxes on these fuels, including a petroleum levy of Rs55.24 per litre on diesel and Rs105.37 per litre on petrol, alongside a climate support levy of Rs2.50 per litre. MSN reports that oil companies are also evaluating the possibility of reintroducing kerosene as a backup fuel source in case of LPG shortages, particularly amid ongoing geopolitical tensions in the Gulf region.
Potential for Kerosene’s Revival Amidst LPG Concerns
While kerosene’s popularity has waned in recent years, the possibility of LPG shortages is prompting oil marketing companies (OMCs) in Pakistan to consider its reintroduction as an alternative cooking fuel. This contingency plan, currently under development, focuses on assessing the feasibility of reviving older kerosene distribution networks, particularly in areas where LPG access is limited. Officials are exploring the employ of the Public Distribution System (PDS), previously used for kerosene distribution, to facilitate a potential rollout. This proactive approach demonstrates a commitment to ensuring energy security and providing alternative options for consumers in the event of supply disruptions.
The potential revival of kerosene is also linked to broader concerns about regional stability and its impact on energy supplies. Geopolitical tensions in the Middle East, particularly in the Gulf region, have raised fears of disruptions to LPG imports, prompting OMCs to prepare for alternative scenarios. The ability to quickly mobilize kerosene supplies could prove crucial in mitigating the impact of any potential shortages and ensuring continued access to cooking fuel for Pakistani households.
Impact on Consumers and Future Outlook
The escalating price of kerosene will undoubtedly impact vulnerable populations who rely on it as their primary energy source. The government’s subsidy on petrol and HSD provides some relief to a broader segment of the population, but the increased cost of kerosene places a disproportionate burden on those with limited financial resources. The long-term implications of these price adjustments remain to be seen, but they underscore the need for sustainable energy policies and investments in alternative fuel sources.
Looking ahead, the government will likely continue to monitor global energy markets and adjust domestic fuel prices accordingly. The effectiveness of the ‘Prime Minister’s Austerity Fund’ in stabilizing prices and mitigating the impact of external shocks will be closely watched. Further developments in the geopolitical landscape, particularly in the Gulf region, could also influence Pakistan’s energy security and fuel pricing policies. The next key checkpoint will be the review of fuel prices scheduled for March 20, 2026, where the government will assess the need for further adjustments based on prevailing market conditions and subsidy levels.
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