Contract rigidity limits supply diversification

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Source: IEEFA

Price shock feeding into Pakistan’s economy

Supply disruptions enter Pakistani homes

Strait of Hormuz disruption amplifies crisis for Pakistan

Need for structural reforms

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The recent attacks on Qatar’s energy infrastructure, amid a widening West Asia conflict involving Iran, Israel and the US, have brought into focus Pakistan’s deep dependence on Gulf energy supplies, particularly liquefied natural gas (LNG). With disruptions in the Strait of Hormuz already hitting shipments and prices, the crisis is beginning to ripple through Pakistan’s economy, from household gas shortages to fiscal stress, highlighting shortcomings of its energy model.According to data from Kpler, Qatar and the United Arab Emirates (UAE) together supply 99% of Pakistan’s LNG imports. India’s neighbour has a long-term contract with Qatar that accounts for most of its supply, delivering around 6.75 million tonnes annually or about nine cargoes per month. These two 15- and 10-year contracts with Qatar account for the bulk of Pakistan’s LNG consumption This supply concentration risk has become critical after Qatar halted production at key facilities following strikes, triggering supply disruptions. The global LNG supplier declared force majeure after its Ras Laffan liquefaction facility was also struck under the ongoing Middle East conflict.Pakistan’s LNG contracts with Qatar, once designed to ensure energy security, are now becoming a hindrance in responding to disruptions. The pacts are indexed to Brent crude, delivered ex-ship (DES) to a designated port, and without cargo rerouting flexibility. Contract prices reflect a Brent crude slope ranging between 10.2% and 13.37%.Hence, Pakistan cannot easily reroute cargoes as it must honour fixed purchase commitments even during disruptions. The country will have to bear financial losses if diverted cargoes are resold at lower prices, while profits accrue to Qatar, as per a report by Institute for Energy Economics and Financial Analysis (IEEFA).The rising energy prices have started hurting Pakistan’s economy, as rising crude prices translate directly into higher LNG import costs. This happens because LNG contracts are oil-indexed, and it further leads to wholesale price shocks feeding into electricity tariffs and fuel prices. Pakistan’s power sector is particularly exposed to the crisis since it is a major consumer of LNG, accounting for approximately 70% of total LNG imports.The government has taken a series of measures to curtail the impact of the price shock with a PKR 55 per litre increase in petrol and diesel prices, the consideration of weekly price revisions to manage volatility and a potential rise in the monthly oil import bill to $600 million.In view of the current gas crisis, the government has introduced austerity measures such as cancellation of Pakistan Day military parade, reduction in fuel allowances for officials, work-from-home policies and school closures among other efforts to limit fuel consumption.Before the US-Israel strikes on Iran began, Pakistan had an LNG surplus as recently as January 2026, with average plant utilisation falling below minimum dispatch levels, according to the IEEFA. This excess supply had prompted the government to divert surplus cargoes to other markets. As a result, Pakistan may be able to withstand short-term LNG shortages , particularly if the Middle East crisis remains contained over the coming weeks.IEEFA added that structural shifts in Pakistan’s energy mix, especially record growth in distributed solar capacity and a decline in grid-based electricity consumption, could help cushion the impact on the power sector, which accounts for a major share of LNG demand.However, the report cautioned that without meaningful reforms and adjustments in demand, the country risks reverting to an LNG surplus situation once the crisis eases.The immediate impact of the gas crisis is already visible in Pakistan’s supply chain. The suspension of LNG shipments from Qatar and disruptions in energy shipments through the Strait of Hormuz have caused severe household gas shortages in cities like Karachi, especially during peak consumption hours.The city is facing an intensifying gas crisis during the month of Ramazan, as reported by ANI, citing Dawn. The shortage has triggered widespread frustration across the city as families struggle to manage daily routines.The already strained gas distribution system is now operating under severe pressure since the conflict erupted on February 28.The report noted that the Sui Southern Gas Company (SSGC) has quietly introduced a revised supply timetable without officially notifying the public in an attempt to face the shortage.Amid these developments, the IEEFA report warned that Pakistan faces a significant risk of supply shortages due to disruptions in LNG flows through the Strait of Hormuz.As per the report, the regasification rate at two LNG terminals has been reduced to 100 mmcfd from 500 mmcfd, as supplies from two vessels received before the conflict are being processed to extend coverage until the end of March.The country has also implemented emergency measures prioritising domestic consumption over industrial use.The system is now operating under strain, relying on limited buffers such as previously received cargoes and restored domestic gas supply.Strait of Hormuz, the key artery through which around 20% of global LNG supply passes, has become a major chokepoint in the conflict, placing South Asian economies, including Pakistan and Bangladesh at significant risk of supply shortages.Iranian attacks on vessels and heightened security risks have slowed tanker movement, increased insurance costs from $30,000 to $400,000 per ship and also raised freight rates significantly.Although some Pakistan-bound shipments have managed to pass with negotiated safe passage, the uncertainty has disrupted supply chains and driven up costs in the already economically strained economy.Kpler data provider MarineTraffic said MT Karachi was "the first non-Iranian cargo to transit the chokepoint while broadcasting its AIS (automatic identification system) signal, suggesting that ⁠select shipments may ‌be receiving negotiated safe passage" in a post on X.The attacks on Qatar’s energy infrastructure have exposed deeper vulnerabilities in Pakistan’s energy system. In the near term, the nation may face continued supply uncertainty, elevated energy prices and pressure on households and industries.In the medium term, the report suggests that Pakistan may need to renegotiate LNG contracts with Qatar for greater flexibility and lower volumes. The country can also accelerate the shift toward renewable energy and reduce dependence on imported LNG for power generation.The disruption of Qatar’s energy infrastructure is not an isolated supply event for Pakistan, but a systemic stress test. The crisis has revealed how dependence on a single supplier, rigid contracts, and limited diversification can amplify the impact of external shocks.As supply disruptions, price volatility and fiscal pressures converge, Pakistan’s experience underscores the risks of an inflexible, import-dependent energy model in an increasingly unstable geopolitical environment.