ISLAMABAD: When the Strait of Hormuz closed on March 4 following Operation Epic Fury, Pakistan found itself confronting one of its most severe energy crises in decades.
The blockade cut roughly 80% of the country's petroleum imports and nearly all liquefied natural gas supplies, sending Brent crude above $120 a barrel from about $69 the previous year. Officials warned Pakistan held petroleum reserves sufficient for only 10 to 14 days, forcing Islamabad into a race against time to keep fuel flowing without derailing an economy still recovering under an International Monetary Fund programme.
While neighboring countries responded by subsidizing fuel to shield consumers from soaring prices, Pakistan chose a different path. Bound by IMF fiscal conditions that prohibited broad energy subsidies, the government imposed sweeping austerity measures, slashed public spending and leaned on the country's rapidly expanding solar capacity, betting the strategy would preserve economic stability until diplomacy reopened one of the world's busiest energy corridors.
Three months later, after the Islamabad Memorandum of Understanding between the United States and Iran reopened the Strait of Hormuz, the emergency restrictions were lifted. Fuel prices eased, supplies stabilized and Pakistan remained on track to meet its IMF performance targets, offering what officials say is an example of crisis management under severe fiscal constraints.
A crisis without easy options
Pakistan entered the crisis with limited room for manoeuvre.
Under its IMF Extended Fund Facility and Resilience and Sustainability Facility, the government was committed to maintaining a 1.6% primary fiscal surplus, leaving little scope for untargeted fuel subsidies even as global oil prices surged.
Instead of cushioning consumers through government spending, Islamabad attempted to reduce demand.
Beginning March 9, the government introduced mandatory remote work across the public sector, a four-day workweek, online university classes, commercial curfews between 8pm and 10pm, reduced fuel quotas at filling stations, restrictions on vehicle purchases, limits on foreign travel and cuts to air-conditioning use across government offices.
Petrol prices climbed 42.7% to Rs485 per liter while diesel rose 54.9% to Rs520, reflecting the scale of the supply shock. The government also withdrew 60% of its state vehicle fleet from the roads and ordered Intelligence Bureau audits of official fuel consumption.
A different approach from Pakistan's neighbors
Pakistan's response contrasted sharply with those adopted elsewhere in Asia.
India reduced fuel taxes, absorbing an estimated $840 million in foregone revenue every two weeks. Malaysia doubled its fuel subsidy allocation to $9.8 billion, while Vietnam and South Africa each forgave hundreds of millions of dollars in monthly tax revenue to soften the impact of higher energy costs.
Islamabad concluded that such measures would jeopardise its IMF programme and opted instead to protect fiscal stability while targeting assistance toward the most vulnerable households.
The government cut Rs173 billion from its development budget, reduced salary expenditures by Rs27.1 billion and allocated Rs129 billion in targeted relief for lower-income families.
Then comes the twist.
This is where the story becomes interesting.
The unexpected lifeline
The austerity measures alone did not prevent a broader energy crisis.
An equally important role was played by Pakistan's rapidly expanding solar sector.
By the time the Strait of Hormuz closed, Pakistan had installed around 35 gigawatts of solar generation, representing roughly 70% of the country's imported solar capacity between 2021 and 2026.
As Qatari liquefied natural gas supplies were disrupted, that solar capacity absorbed much of the country's daytime electricity demand, reducing pressure on the national grid and helping avoid the widespread industrial blackouts many had feared despite circular debt exceeding Rs5 trillion across the electricity and gas sectors.
Diplomacy ends the crisis
While austerity measures managed domestic demand, Pakistani diplomacy sought to restore supply.
On June 17, US President Donald Trump and Iranian President Masoud Pezeshkian signed the Islamabad Memorandum of Understanding, reopening the Strait of Hormuz and ending the Iranian port blockade after more than three months of disruption.
Within 48 hours, fuel supplies began normalizing.
Petrol prices fell by as much as Rs74 per liter on June 19, while the government ended most emergency austerity measures the following day.
Pakistan also established a Petroleum Prices Stabilization Fund, aimed at strengthening the country's resilience against future global energy shocks.
A fiscal test
The crisis ultimately became more than an energy emergency.
It became a test of whether Pakistan could navigate a global supply shock without abandoning the fiscal discipline underpinning its IMF programme.
According to official assessments, the country met all of its quantitative IMF performance criteria, while inflation was projected at between 11% and 12% and the government's 4% economic growth target for the 2026-27 fiscal year remained intact.
Unlike several regional economies that relied on large-scale subsidies, Pakistan responded through austerity, targeted relief and an expanding renewable energy base. An approach officials argue allowed the country to weather one of the region's most significant energy disruptions without compromising longer-term fiscal stability.
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