Sticky oil price is a big worry

Business Recorder reported that Brent crude has traded above USD107 a barrel, up from about USD72 before the Iran war. The latest push followed Washington's rejection of Tehran's seven-day proposal aimed at reopening the Strait of Hormuz. The article says the market now cares more about how long disruption lasts than the next military event.

Physical supply is moving the other way. Saudi Arabia has resumed shipments from Yanbu following repairs to the East-West pipeline, with flows near 2.65 million barrels per day, and Middle East exports are nearing 80 percent of pre-conflict levels. Even so, the market is pricing the gap between oil that can technically move and oil that can move reliably, with Hormuz still constrained, alternative routes costlier and riskier, tanker and insurance costs higher, and the Red Sea no safe substitute. Deutsche Bank cites December 2027 Brent futures at new highs, suggesting investors see the spike as more than a front-end event.

For Pakistan, a temporary move towards USD100 would be uncomfortable but manageable. A sustained level above that would press on import spending, consumer prices, transport expenses and external balances for longer. It would also complicate the government's petroleum levy plans. Buffers are stronger than in 2022, with a healthier current account, firmer reserves and a steadier rupee, but these only soften the blow.