One oil shock meets four different buffers across South Asia

One shock, four separate buffers

According to Daily Pakistan, Brent futures climbed to $107.95 on 24 September. AA reported them back at $98.90 on 30 September. That $9 swing within a week handed the same bill to South Asia's four largest importers. What pays the bill, however, differs from country to country.

India is absorbing the shock through its reserves and fiscal flexibility. Pakistan is looking for room to manoeuvre while staying inside its 7 billion dollar IMF programme. Sri Lanka has reopened support by pressing against the IMF's 100 billion rupee subsidy ceiling. Bangladesh has instead loaded the cost straight onto the pump, raising diesel by 20 taka a litre.

The choice of buffer decides who ends up carrying the shock. A country that draws on reserves protects its currency but spends its savings. A country that subsidises protects households but strains its budget and its IMF relationship. A country that passes prices to the pump protects the budget and shifts inflation onto households. By ending its sliding-scale fuel tax on 1 October, Türkiye chose the third of these routes, but spread it over three months.

Pakistan, caught between pledge and pump

The Express Tribune reported on 2 October that the IMF's fourth review has stalled over 75 billion rupees of fuel support. The aid would go to owners of motorcycles and small cars for three months, and the IMF suspects the true cost may be higher. Under the programme, Pakistan had pledged not to introduce fuel subsidies or cross-subsidies. According to the paper, that pledge was broken last month.

The government's defence rests on the tax structure. The Petroleum Ministry puts the tax-free import cost of petrol at about 250 rupees a litre. Consumers pay 390 rupees, including 110 rupees of tax and a 27 rupee margin. Dawn gives the tax as 114 rupees a litre and the petrol price from 1 October as 387.40 rupees. Pakistan collects heavy taxes at the pump, and the dispute is about returning part of that tax to a narrow group.

The IMF objects less to the amount than to the method. On 29 September, mission chief Iva Petrova asked for the support to flow through BISP, the Benazir Income Support Programme, which is a targeted cash-transfer network. According to Dawn, the government committed to moving electricity subsidies onto BISP by January 2027. It also pledged to raise the cash transfer by about 25%, to 18,000 rupees.

The real burden is building up in the gas chain. The IMF wants 1.4 trillion rupees owed to distribution companies written off. Circular debt, meaning chains of unpaid energy bills, totals 3.6 trillion rupees. Dawn reports that public debt rose 76%, from 49.3 trillion rupees in June 2022 to 86.7 trillion rupees in June 2026. Gross financing needs are equivalent to about 20% of GDP.

The external buffer is patchy. The 30 billion yuan swap line with China is fully drawn, and there is no signed agreement on the 10 billion dollar currency stabilisation facility requested from the United States. Sources also disagree on the timing of the 1.2 billion dollar tranche. Dawn says late October or early November, while ProPakistani says late November or early December. The policy rate is 11.5% and August consumer inflation was above 11%. Air strikes on two locations in Afghanistan on 1 October ended roughly three months of relative calm. Sources gave no figure for the budgetary cost of the security front.

Sri Lanka and Bangladesh, two opposite choices

Sri Lanka has reopened support. According to a Daily Star report based on AFP, the government will spend 126 million dollars subsidising diesel for three months from October; petrol is excluded. During the first three months of the war, 175 million dollars went on petrol and diesel. Fuel prices have risen about 50% since February, and annual inflation hit a 38-month high of 8.0% in August.

According to The Morning, the IMF programme set a 100 billion rupee ceiling for temporary fuel, electricity and fertiliser support. It also required that support to end by late September. The IMF mission left the country on 23 September without a staff-level agreement on the seventh review. The Energy Ministry's secretary said the IMF had not rejected the proposal. Whether the new 126 million dollars falls within the ceiling could not be verified.

Bangladesh did the opposite. The Daily Star reported that four products rose by 20 taka a litre on 21 September. Diesel went from 115 to 135 taka, petrol to 160, octane to 165 and kerosene to 155 taka. Diesel has become 35% more expensive since February. Even so, state-owned BPC calculated a full-cost diesel price of 187 taka for September. The new price still sits about 52 taka below cost.

That gap lands on a balance sheet. BPC lost 22,875 crore taka between March and August, and 19,500 crore taka was diverted from development projects to working capital. The price rise is expected to prevent about 10,000 crore taka of losses a year. Diesel makes up 64% of total petroleum consumption, and 15% of that is used in agriculture. The increase therefore feeds directly into food prices.

In an interview published on 26 September, Fahmida Khatun of the Centre for Policy Dialogue in Dhaka called the adjustment necessary. She nonetheless described a one-off 20 taka rise during a period of high inflation as a heavy blow. Her proposals include a pricing formula based on a three-month average, a price stabilisation fund and time-limited cash support for low-income households. This prescription sits close to Türkiye's excise transition spread over three months.

India, a large buffer but shrinking room

According to Hindu BusinessLine, the central government's budget deficit rose to 7.1 lakh crore rupees in April–August. That is 41.9% of the annual target, against 38.1% a year earlier. Business Standard reports that capital spending rose 18% and major subsidies about 25%. The year-end target is 4.3% of GDP. Even so, the government cut its annual borrowing by 1.2 trillion rupees and plans to issue 7.8 trillion rupees of bonds in the second half.

On prices, the gap is widening. In August, consumer inflation was 4.82% and wholesale inflation 9.92%. The five-point gap shows that producer costs have not yet fully reached consumers. According to Deccan Chronicle, the RBI assumes an oil price of 90–95 dollars for 2026–27. The 10-year yield, meanwhile, has risen above 7%.

The policy rate stands at 5.25%, and the committee announces its decision on 7 October. HSBC expects 25 basis point hikes in October and December, taking the rate to 5.75%. Motilal Oswal speaks of a total of 75–100 basis points. Some economists, however, expect no change; expectations are split.

The reserve buffer is large, but it is being used. RBI data show reserves fell by 14.88 billion dollars to 765.9 billion dollars in the week of 18 September. Of that decline, 14.82 billion dollars came from foreign currency assets. The pattern is consistent with currency defence, but it could not be verified because the RBI does not disclose its intervention. The rupee traded at 95.98 to the dollar on 28 September. The same day the Nifty 50 fell 1.56% to 22,780.25, and foreign investors were net sellers of 5,353 crore rupees.

Congestion in the Strait of Hormuz has also physically reached India's coast. A Bloomberg analysis cited by gCaptain says at least two VLCCs, or very large crude carriers, are conducting ship-to-ship transfers in the Gulf of Kutch. Unloading a fully laden VLCC now takes five to six days, and charter costs exceed one million dollars a day. The receiving ships head to Singapore and South Korea. India gains no price advantage from this traffic; it takes on port and insurance burdens instead.

Where Türkiye sits in the same picture

Türkiye ended its sliding-scale fuel tax on 1 October. According to Hürriyet, the petrol excise will be 7.90 lira in October, 11.36 lira in November and 14.8277 lira in December. A one-off return would have meant a rise of about 12.47 lira a litre. This choice falls between Bangladesh's one-off increase and Pakistan's attempt to hand back tax. The price moves to the pump, but over three months.

The difference lies in the size of the buffer. Bloomberg HT reports that the CBRT's gross reserves fell to 171.2 billion dollars in the week of 25 September. Net reserves excluding swaps fell to 39.9 billion dollars, a drop of 16 billion dollars in a month. India's 765.9 billion dollars of reserves cover 11.1 months of imports; Türkiye's usable buffer is far thinner. The August energy bill had risen 33.8% to 6.464 billion dollars.

Türkiye has no IMF anchor; its anchor is the CBRT's rate decision. The experience of Pakistan and Sri Lanka shows subsidy pressure returning within three months, even under an IMF programme. If the excise steps push up inflation in October–December, rate cuts in Türkiye will be delayed. In our previous report we recorded the five-year CDS at 248.74 basis points on 29 September. The 250 threshold will show whether this burden is passing into the sovereign price.

What to watch

Five dates stand out over the next four weeks. On 7 October, the RBI decision will show whether the 5.25% rate holds. According to The Express Tribune, Pakistan's 3.6 trillion rupee gas plan will be discussed next week, and the board timetable for the 1.2 billion dollar tranche depends on it. Sri Lanka still has no staff-level agreement for the seventh review.

There are two thresholds on the price side. If Brent settles above 105 dollars, support in Pakistan and Sri Lanka will exceed IMF ceilings, and Bangladesh's 52 taka cost gap will widen again. If Brent returns to the RBI's assumed band of 90–95 dollars, pressure for a hike in India eases. In Türkiye, the pump effect of the excise steps would then be partly offset.