Page 57 - CMA Journal (Mar-Apr 2026)

Literature Review early March 2026 (Qadir, 2026; Lokmat Times, 2026). At the
same time, the spot LNG price increased to USD 8.72 per
The body of scholarly literature discussing the nexus MMBtu, re ecting market concerns about potential
between geopolitical risk (GPR) and the macroeconomic disruptions to Qatari exports (Trade Chronicle, 2026).
instability in emerging economies has grown signi cantly.
In the case of Pakistan, this global price shock was re ected
Caldara and Iacoviello (2022) constructed a text-based GPR in domestic petrol and HSD prices, as quarterly adjustments
index that revealed a signi cant negative relationship are carried out by OGRA. Although estimates vary, PIDE has
between an increase in geopolitical tensions and economic estimated that every USD 10 per barrel increase adds about
activity in the developing countries, where transmission is
USD 1.8-2.0 billion to Pakistan's annual petroleum import bill
mostly achieved through commodity price and exchange
(Qadir, 2026). With projected crude prices of USD 120-150
rate pressure channels. Ahmed et al. (2023) determined that
per barrel, monthly petroleum imports would rise to USD
net-energy-importing emerging economies exhibit about
3.5-4.5 billion, unsustainable given current foreign exchange
2.3 times higher macroeconomic sensitivity to geopolitical
reserves.
supply shocks compared to diversi ed advanced
economies. Domestic price transmission was rapid and broad. PBS
statistics reveal that the 18.01 percent month-on-month
In the framework of Pakistan, empirically based research
increase in motor fuel prices in March 2026 was the highest
records asymmetric and lasting effects of exogenous energy
monthly change since the 2022-2023 crisis (Pro t, 2026). This
price shocks. Using the VAR methodology, Sardar and Hyder
shock transmitted through three channels: a direct increase
(2022) showed that the origin of oil price shocks began to
have a functional effect on the dynamics of in ation, where in transport costs, with services recording a 9.15 percent
the effects of geopolitically-imposed supply shocks proved month-on-month increase (PBS, 2026); ampli cation of
to be more enduring and pronounced. Lahore School of agricultural input costs due to the diesel price hike,
Economics Modelling Lab (2025) showed that the pass- contributing to a 34 percent annual increase in wheat prices
through effect on local in ation is most signi cant with (Pro t, 2026); and the erosion of industrial competitiveness.
exchange rate movements on all external variables. Springer
(2023) established that the ERPT coefficient is systematically Power Sector Circular Debt Ampli cation Mechanism
higher in economies characterized by higher import
dependence and low monetary policy credibility. Studies The shock was transmitted to Pakistan's power sector
indicate that a 1 percent rupee devaluation results in about through a different channel. CPPA sources about 40 percent
0.41 percent in ation within six months (INP, 2024). of its power generation from imported fuels, mainly RLNG
and RFO, under long-term power purchase agreements in
On the power sector, Khan and Mahmood (2024)
which fuel costs are pegged to international rates (Khan and
documented the structural relationship between circular
Mahmood, 2024). Rising global LNG and fuel oil prices
debt and international fuel price volatility where every USD
exerted immediate and direct pressure on generation costs.
10 per barrel increase translates to about PKR 85 billion in
However, the scal impact was ampli ed by the institutional
annual circular debt via the fuel price adjustment
structure, speci cally the widening gap between generation
mechanism. Rahman et al. (2023) determined that take-or-
pay capacity commitments, indexed to international fuel costs and end-user tariffs. The politically motivated
prices, constitute a direct transmission channel between avoidance of full fuel price adjustments led to further circular
geopolitical energy threats and nancial vulnerability. debt accumulation.
Hasnat and Siddiqui (2025) revealed that capital ight,
Circular debt was estimated at about PKR 2.6 trillion pre-
informalization of foreign currency holdings and speculative
con ict, or 3.1 percent of GDP (NTDC, 2025). According to
pressure on the rupee accelerate when political and military
PIDE analysis, a sustained USD 30 per barrel increase would
shocks occur regionally.
add approximately PKR 250-300 billion to annual circular
debt accumulation (Qadir, 2026). This scal strain manifests
Petrol Price Transmission Channel
in higher government borrowing, which crowds out private
The US-Israeli raids and instant closure of the Strait of sector credit and pushes up interest rates. Moreover,
Hormuz on 28 February 2026 triggered immediate changes electricity prices directly contributed to headline in ation,
in international energy benchmarks. Within seventy-two with the 5.08 percent month-on-month increase in March
hours, Brent crude futures rose to over USD 105 per barrel, 2026 directly related to electricity costs (PBS, 2026).
with intraday highs of USD 115-116 per barrel occurring in

55 ICMA’s Chartered Management Accountant, Mar-Apr 2026