ICMAP calls for 90-day oil buffer, Sharia hedging to avert economic shocks

KARACHI: The Institute of Cost and Management Accountants of Pakistan (ICMAP) on Friday recommended expanding Pakistan’s strategic petroleum reserves from the current 21 days to at least 90 days of national demand, as well as adopting Sharia-compliant oil price hedging instruments to tackle the fallout from the Israel-Iran conflict.

The ICMAP has released a policy-focused assessment, supporting the government’s recent initiative to form a high-level committee, led by the finance minister, to assess rising economic risks. This high-level task force would be responsible for monitoring global developments and coordinating timely, cross-institutional policy responses to safeguard Pakistan’s economic stability.

The assessment underscores that while the conflict remains geographically limited, its indirect economic consequences are already rippling across global markets, particularly affecting energy, trade and financial systems.

For Pakistan, the exposure is significant due to its dependence on imported fuel, critical maritime trade routes through the Gulf, and the livelihoods of over four million expatriate workers based in the Middle East.

“Central to the analysis is a warning that any disruption in the Strait of Hormuz -- through which nearly 20 per cent of global oil and LNG transit -- could drive oil prices to between $100 and $130 per barrel,” the CMAP said in a statement.

“This would substantially increase Pakistan’s energy import bill, elevate power generation costs and accelerate inflation. Domestic diesel prices could rise by more than 30 per cent, with wide-ranging effects on food production, transportation and household expenditures,” it added.

The report further highlights rising risks to financial stability. Depreciation of the Pakistani rupee, increased external debt servicing costs, and fiscal pressure from potential fuel subsidies could erode macroeconomic resilience. Exporters are already facing sharp increases in shipping insurance premiums, reportedly climbing from $400 to $2,000 per container, thereby undermining export competitiveness. In addition, supply chain disruptions and elevated freight charges are expected to impact industrial production -- particularly in key sectors such as textiles, chemicals and edible oils.

The institute recommends expanding Pakistan’s strategic petroleum reserves from the current 21 days to at least 90 days of national demand. This critical buffer could be financed through sovereign Sukuk, modelled after successful international practices, to enhance energy security and reduce vulnerability to global supply shocks.

Additional recommendations include the adoption of Sharia-compliant oil price hedging instruments for up to 30 per cent of imports to manage exposure to international price volatility. The ICMAP also advocates diversifying oil procurement by pursuing local currency trade agreements with countries such as Russia, Iran and China. Accelerating the modernisation of local oil refineries is also advised, which could reduce reliance on imported refined fuels and potentially save up to $1 billion annually. The ICMAP further recommends reversing recent taxes on solar panel imports and fast-tracking the implementation of the 10,000MW Solar Initiative to promote clean energy and enhance long-term energy resilience.

On the external front, it emphasises the need to safeguard overseas remittances by engaging Gulf countries, incentivising formal remittance channels, and supporting returning workers to sustain household incomes and foreign exchange inflows.

The ICMAP further suggests applying for financing under the IMF’s Resilience and Sustainability Trust (RST) and establishing an energy shock stabilisation fund in collaboration with multilateral development partners to strengthen fiscal buffers.

The ICMAP cautions that although the Israel-Iran conflict remains militarily contained, its broader economic implications -- especially through oil price shocks, trade disruptions, inflation, and rising insurance costs -- could significantly impact Pakistan’s economic outlook. The institute stresses that only a proactive, well-coordinated and forward-looking policy response can ensure economic stability and preparedness in these uncertain times.