For millions of Pakistani households, the price of a litre of diesel is no longer just an energy statistic; it determines the price of wheat flour, vegetables, milk, poultry and almost every essential food item on the dining table.
FUEL PRICES
For millions of Pakistani households, the price of a litre of diesel is no longer just an energy statistic; it determines the price of wheat flour, vegetables, milk, poultry and almost every essential food item on the dining table.
In a semi-industrialised economy, with agriculture contributing about one-quarter of GDP, more than one-third of the labour force employed in agriculture, and a high reliance on diesel-powered irrigation, transportation, and farm machinery, fuel prices constitute one of the strongest transmission channels of food inflation in the country.
The mechanism is direct and cumulative. Fuel is an input throughout the food value chain in Pakistan, from pumping water for irrigation and operating tractors and harvesters, to powering inter-city freight and cold-chain logistics, and the fertiliser and electricity that are so vital to agriculture. The impact of every rise in petroleum prices is amplified as production and logistics costs are added to the cost at the till. The real backbone of this chain is diesel, not petrol: it pumps tube wells, threshes wheat, rice, sugarcane, maize, fruits and vegetables, and powers freight trucks carrying all of them. There are few viable alternatives when the price of diesel increases, as a result of which Pakistan's food system suffers.
Global supplies briefly stabilised and the Sensitive Price Indicator (SPI), which tracks the weekly prices of 51 essential commodities, dipped by 0.98 per cent in early July 2026, mainly due to relief in petrol prices, which eased to around Rs297.53 a litre, and diesel, which fell to Rs309.50. The renewed tension between the US and Iran over the Strait of Hormuz, however, forced Brent crude to surge from around $72 on July 6 to above the $91 mark by July 21, a rally of close to 27 per cent in just two weeks, prompting Ogra to seek an increase in petrol prices to around Rs 316–320 a litre and to switch to a daily pricing mechanism for the first time.
The SPI promptly reversed course, rising 1.4 percent in the week to 16 July on the back of tomatoes (+22.8 per cent week-on-week), chicken (+14.7 per cent) and LPG (+12.5 per cent). This is Pakistan's second such cycle this year: petrol and diesel hit all-time highs of Rs 458.40 and Rs 520.35 a litre, respectively, on April 3, 2026, at the peak of the earlier Hormuz closure.
All of the headline numbers are underestimates of the stickiness of this pass-through. The Economic Survey of Pakistan (ESP) has been released, showing that average inflation for July–April FY26 stood at 6.2 percent before the final average reached 7.05 percent in FY26 after the data for June was incorporated. Despite the decline in CPI from 11.7 percent in May to 11.1 percent in June, food and non-alcoholic beverage prices climbed 9.38 percent nationally in June, compared with 8.2 percent in urban areas and 9.4 percent in rural areas, while fuel prices were nominally declining during the period.
Compared with regional exposure, Pakistan's exposure appears unique rather than exceptional. Retail inflation in India stood at an elevated 4.38 per cent in June 2026, while food inflation increased by 5.32 per cent. Sri Lanka's headline inflation rose to a three-year high of 6.8 per cent, driven by an increase in domestic fuel prices of close to 47 per cent following a supply shortage stemming from the Middle East. Both figures are much lower than Pakistan's.
Instead of the cost of the next barrel of crude being a side project of the energy ministry, the more sustainable form of food security Pakistan currently has is a food system less reliant on the price of the next barrel
Bangladesh is more like Pakistan than India when it comes to food inflation. Although it is making real investments in rural connectivity, inland water transportation, and export-oriented agro-processing, it currently suffers from the highest rate of food inflation in South Asia because it is highly dependent on imported fertiliser (total nutrients of 6 million tonnes per year, compared with 10 million for Pakistan and 60 million for India). Investment in logistics will not help shield an import-reliant food system from an energy shock.
On the other end of the spectrum are India and Vietnam. Geographically, India has cushioned rural food prices through its road network, the integration of cold-chain systems, and selective fertiliser subsidies, which have mitigated inefficiencies in the food supply chain that would otherwise exacerbate fuel price shocks. Vietnam has made an even greater leap by developing one of Asia's best-performing agricultural supply chains through mechanisation, diversified energy use, and closer connections between producers and markets, so that oil price increases generate a visibly smaller pass-through to domestic food prices. In Pakistan, by contrast, the average fuel cycle is an outlier because it is marked by weak value-chain segments, numerous intermediaries, inadequate storage facilities and high road transport costs.
The policy point is that the government can sell fuel at reduced prices, provide temporary subsidies and reduce the apparent headline figure, but it cannot correct a structural transmission issue. A durable response works on both sides of the chain. On energy: speed up solar-powered irrigation, hedge some of the crude import bill during price windows such as early July, and create a modest, levy-driven price stabilisation buffer. Otherwise, Pakistan will have to put up with emergency price hikes by Ogra every time the Strait of Hormuz shuts down.
On agriculture: introduce more cold-chain and storage facilities for perishables like tomatoes and onions, which have the most volatile price trends in the SPI; increase reliance on rail transport; and align input subsidies with the kharif and rabi sowing seasons, since fertiliser costs lag oil prices downward by months even as they track them upward within weeks. An integrated monitoring system that incorporates fuel-price forecasting, tracks transport-cost indices, and provides access to wholesale market intelligence, all of which are emerging across much of the developing world, would give policymakers a heads-up instead of leaving them to see the next shock in the SPI only after it has already happened.
Food inflation is no longer just an agriculture problem for Pakistan; it has become an energy problem. Every spike in diesel prices moves through farms, transport networks, wholesale markets, and household kitchens together. Thus, instead of treating the cost of the next barrel of crude as a side project of the energy ministry, Pakistan's more sustainable path to food security lies in building a food system that is less reliant on the price of the next barrel of crude oil.
The writer is an assistant professor and member of the Macro Policy Lab at the Pakistan Institute of Development Economics (PIDE). She can be reached at: [email protected]
