The International Monetary Fund (IMF) has endorsed a new formula to fix prices of high-speed diesel, which has addressed the issue of windfall gains to oil refineries due to the Middle East war and helped keep diesel prices lower by Rs100 per litre for this week.

Without any change in the formula, the diesel price would have been Rs480 per litre for the current week, compared with the Rs380.2 per litre announced by Petroleum Minister Ali Pervaiz Malik on Friday. Government officials said the federal cabinet last week approved a new pricing mechanism for setting diesel prices for at least three months.

However, the IMF raised questions about the second change in the formula within one week and its implications for the budget. A virtual meeting was held with the IMF on Friday, hours before the announcement of new prices, and the fund agreed to the changes, which have taken care of consumers’ interests without adding burden to the budget, said the sources.

The new formula is now based on price determination using the value of Dubai crude oil, ending the mechanism of determining rates on the basis of average Platts of refined products. The issue of windfall gains to oil refineries was first raised by former finance minister Miftah Ismail, which led to an internal government review of pricing.

Sources said the IMF accepted the changes after assurances that the stakes of all shareholders had been protected. Refineries stepped forward to play a proactive role and worked with the Petroleum Division to jointly work out solutions to everyday challenges, said Petroleum Minister Ali Pervaiz Malik while confirming the development. He added that the prime minister himself took stock daily to find a solution to protect consumers as much as possible.

Malik stressed that once the Middle East crisis is over, the oil sector must be taken towards full deregulation, refineries should be upgraded, and the Oil and Gas Regulatory Authority (Ogra) must be upgraded to a modern, nimble, state-of-the-art regulator using modern digital tools.

Unlike in the past, when power producers signed revised contracts under duress that hurt investment sentiment, this time the government reached a middle ground without using coercive measures.

However, the prime minister’s strategy of increasing the petroleum levy to offset a massive shortfall in FBR tax revenues has led to public backlash. Sharif increased the petroleum levy on petrol by Rs26.77 per litre on Friday, which is higher than the Rs80 per litre limit set for petrol and diesel by the IMF. The government is now charging Rs107 per litre in petroleum levy on petrol while it has not restored the levy on diesel.

The FBR’s tax revenues fell short of the downward revised target by Rs610 billion during the first nine months of this fiscal year, creating a dent in the primary budget surplus target agreed with the IMF. The government also remained unable to renegotiate the Rs3.4 trillion annual primary surplus target with the IMF, which has now tied its hands and resulted in increased levy rates.

The IMF initially proposed that the government impose a windfall tax to recover the difference between imported and locally refined diesel and then use these funds to subsidise the price, according to government officials who negotiated with the IMF. The government did not agree to the windfall gain tax because there was no foolproof mechanism to use this money for intended purposes.

The new pricing formula has been implemented for three months during the wartime period, with an option that the government will review the formula again and, subject to the consent of all parties, the mechanism can be extended further.

Pakistan entered March 2026 with minimal strategic oil reserves, less than three months of import cover. Still, it was able to steer the ensuing crisis without a single dry-out incident because of what the petroleum minister has often called “prompt decision making, diplomatic support and strong leadership at the highest level”.

Malik said Deputy Prime Minister Ishaq Dar and Field Marshal Asim Munir provided tremendous support in arranging alternate supply routes through diplomatic channels to avoid shortages.

Change in formula

The government has made multiple changes to its price determination mechanism since the war began on February 28. On April 11, the federal cabinet approved a one-time intervention in diesel pricing to absorb the extraordinary increase by setting weekly prices based on the lowest value of HS Platts of the previous week.

The sources said another meeting under the petroleum minister was held last week with oil refineries to discuss persistent highly volatile market conditions arising from the continued blockade of the Strait of Hormuz. An agreement was reached to protect consumers from price volatility, and a crude-based pricing mechanism for the next three months was adopted. The sources said that if this new formula had not been agreed, the diesel price today would have been Rs480 per litre.

According to major changes, the average of last week’s Dubai crude oil will be used as the base price. Aramco’s crude oil premium for Arab Extra Light for Asia, notified monthly, is used for each month – $3 per barrel for April.

Based on the weighted average crack of diesel, petrol and furnace oil, the high-speed diesel crack has been capped at $41.89 per barrel, with a floor set at $11.33 per barrel. This will ensure the historic weighted average crack of $6.16 per barrel.