KARACHI:

In March 2026, as the aftermath of the US and Israeli strikes on Iran ripples through the global economy, the fragility of the international energy chain has been laid bare. With reports of QatarEnergy halting spot shipments and Iran threatening to effectively close the Strait of Hormuz, the “worst-case scenario” for energy-dependent nations is no longer a theory – it is an existential crisis.

The strait remains the world’s most critical chokepoint, with 20 million barrels of oil per day (bpd) – nearly 30% of all seaborne-traded oil – passing through it. For Pakistan, the vulnerability is acute: roughly two-thirds of its total LNG supplies transit this route. At a time when every $10 increase in oil prices expands Pakistan’s current account deficit by $1.5 to $2 billion annually, the transition to a “war-room effort” for domestic energy is a national strategic priority.

Strategic asset: Thar coal and Reko Diq comparison

Thar coal is Pakistan’s single most strategic asset, rivaling the mineral wealth of Reko Diq. With estimated reserves of 175-186 billion tonnes, Thar lignite provides a massive hedge against global price shocks. In the 2024-25 fiscal year, Pakistan’s domestic coal production reached a record 19.1 million tonnes, a leap from 12 million tonnes just two years prior.

As of early 2026, Thar-based generation capacity has reached 3,300 megawatts, delivering electricity at a fraction of the cost of imported fuels. While furnace oil or LNG-based generation costs can soar towards Rs50 per unit during global conflict, Thar coal power remains stable at roughly Rs5-8 per unit.

Beyond price, the domestic nature of this fuel ensures that the country’s economic engine keeps ticking regardless of maritime blockades. Extracting this “treasure under the rocks” is not just about power; it is about dollar savings, job creation, and geopolitical security.

RLNG ‘love affair’ and shift to reliability

Pakistan’s reliance on re-gasified liquefied natural gas (RLNG) has been a volatile “love affair” characterised by oversized plants, “take-or-pay” guaranteed offtake, and expensive cargoes. By late 2025, Pakistan faced a bizarre surplus, seeking to defer or sell 24 long-term cargoes to Qatar due to high prices and low industrial demand. Now, with the regional conflict causing unavailability, the risks of this “topsy-turvy” relationship are clear.

This crisis proves that predictability is the true currency of security. While the country must leverage nuclear, solar, and wind (supported by large-scale battery solutions currently entering the market), the baseload reliability of Thar coal is the true saviour. Gas-based plants should be secondary, with scarce gas diverted to export-oriented industries to stabilise the current account.

Indigenous gas: ending ‘deliberate shutdown’

Reports indicate that Pakistan previously curtailed indigenous gas production by as much as 250-350 mmcfd to honour expensive “take-or-pay” LNG contracts. In the current 2026 landscape, the government is finally “re-plugging” these reserves. Bringing this local gas back online is a direct injection of dollar-saving fuel into a system that has seen production decline from 4.1 bcf/day in 2014 to roughly 2.8 bcf/day in 2025.

Despite the difficult terrain in underexplored sedimentary basins, Pakistan must increase its drilling density. Every additional cubic foot of domestic gas strengthens the foreign exchange position and increases tax revenues.

Reform agenda: from stabilisation to acceleration

The current regime has undertaken significant structural repairs. IPP contract mending: Renegotiating terms to reduce capacity payment burdens. Subsidy rationalisation: Moving towards BISP-based cash transfers for the poor while increasing tariffs for higher residential tiers and reducing cross-subsidies for the industry. Circular debt management: Improving the recovery of receivables for domestic exploration companies and reducing UFG (unaccounted-for-gas) losses at SSGC and SNGPL.

However, stabilisation is only the first step. Companies must now move past “hefty dividend payouts” and super-accelerate production. The state must catalyse this by offering a “war-room” policy incentive.

Global models and financial incentives

Pakistan should adopt a financing model similar to the Export Refinance Facility (ERF), providing borrowing lines at the SBP policy rate minus 2-3% for domestic energy projects. Global examples show the power of such incentives:

United States: The Inflation Reduction Act (IRA) provides massive tax credits for domestic production, turning local energy into a guaranteed profit centre. India: Through production-linked incentives (PLI) and revenue-sharing models, India has pushed domestic coal production past 1 billion tonnes, saving billions in foreign exchange. China: Utilising state-backed policy banks, China has financed domestic mining and “green” transition at a scale that ensures energy independence.

Pakistan’s economic stability is fragile. If the current war prolongs, elevated oil prices will devastate tax revenues, the inflation outlook, and industrial production. With only one primary maritime gateway, any regional conflict can bring the country to a standstill.

Operationalising secondary ports and domestic land-based sources – such as Thar coal gasification for fertiliser and diesel production – is no longer a choice; it is a national strategic priority. The time to act was yesterday. The next best time is now.

The writer is an independent economic analyst