Whenever there is price revision for products like petroleum, there are bound to be consequences in the market. We are seeing these results now with major shortages of petroleum products in many cities and towns. These supply disruptions have been seen throughout the country, raking up petrol shortages in all provinces, including Azad Jammu and Kashmir and Gilgit-Baltistan.

This shortage is due, in part, to the lowering of the price of petrol by the government. The federal government had reduced the price of petrol by Rs7.06 per litre for the month of June in line with the dip in global crude oil prices due to virus-fuelled lockdowns. This price is below the market deemed price with India’s being almost exactly double. While the government’s intentions are commendable, lowering the burden to the consumers who are already facing financial hardships to the lockdown, it did not accurately balance this drop in price with OGRA’s formula, of balancing the refinery margins with the import parity prices, nor did it take into account the behaviour of the OMCs. Lowered prices means a lower profit margins for refineries, leading to a shortage of petrol.

There could be some room, as the government is now trying to do, to level this blame on OMCs and pressure them to beef up supplies and maintain sufficient stocks. However, ultimately, these are profit-driven companies, so the burden will inevitably fall on the state-run PSO. There is the option of either increasing regulations for OMCs, which is undesirable and in itself carries several risks. Ultimately, the government has to strike a balance – the current price policies completely pass on the benefit of the decrease in oil prices to the final consumer. The government needs to adjust the price and set in policies to ensure that the government and the OMCs get a share of the benefit as well, in order to stabilise the market.