Pakistan is actively considering a major energy import deal with Iran that could see crude oil and natural gas purchased at 15-25% below international prices. The Iran-Pakistan gas pipeline project — stalled for over a decade — could restart by late 2026 under the US-Iran ceasefire framework.

Pakistan Considering Buying Cheap Oil and Gas from Iran 2026: What We Know About the Proposed Deal

A potential Pakistan-Iran energy partnership could reshape the country’s fuel import bill, ease pressure on the rupee, and unlock billions of dollars in long-stalled pipeline infrastructure.

By Life in Pakistan Staff · Energy Desk
7 min read · Updated 16:30 PKT

Pakistan is actively considering a major energy import deal with Iran that could see the country purchase crude oil, refined petroleum products, and natural gas at significant discounts to current international market prices. The discussion, which has gained momentum since the US-Iran ceasefire framework was signed in mid-June, would mark a strategic pivot in Pakistan’s energy sourcing strategy and could deliver material relief to consumers who have absorbed multiple rounds of fuel-price increases over the past 18 months. Officials at the Ministry of Energy and the Petroleum Division are in early-stage discussions; no formal agreement has been signed, but the framework is being prepared for the joint ministerial commission meeting expected later this year.

The headline: Pakistan is exploring discounted Iranian crude oil and natural gas imports under a long-term bilateral arrangement. The pricing could be 15-25% below current international benchmarks, with potential savings of $1.5-3 billion annually on Pakistan’s energy import bill. Delivery would be overland via the existing Iran-Pakistan border crossings, reducing shipping costs and time-to-market.

Why this matters now

Pakistan’s energy import bill is one of the structural drivers of the country’s chronic trade deficit and currency pressure. In FY25, Pakistan imported approximately $17 billion worth of petroleum products and LNG, accounting for roughly 28% of total import expenditure. Even with the recent decline in global crude prices following the US-Iran ceasefire, the absolute PKR-denominated cost of fuel imports has remained elevated due to rupee depreciation.

An Iranian oil and gas deal at discounted prices would directly address three structural pain points:

$17BPakistan FY25 fuel and LNG imports

28%Share of total imports

15-25%Potential discount vs international price

$1.5-3BPotential annual savings

What is on the table

Based on discussions reported through official and diplomatic channels, the proposed framework covers three distinct energy products:

Product	Volume (potential)	Pricing mechanism	Delivery
Crude oil (Iranian Light / Heavy)	100,000-200,000 barrels/day	Discount of $6-10/barrel vs Brent benchmark	Sea-borne via Karachi port, or overland via Zahedan-Quetta
Refined petroleum products (gasoline, diesel, HSD)	50,000-100,000 tonnes/month	Discount of $50-100/tonne vs regional benchmark	Sea-borne to Karachi, or via coastal shipping
Natural gas (LNG / piped)	500-1,000 mmcfd (million cubic feet/day)	Discount of $1-2/mmbtu vs spot LNG	Overland via IP pipeline, or seaborne LNG

The volume ranges are indicative; final figures depend on refinery capacity, demand forecast, and financing structure.

The bilateral payment mechanism. A key enabler of any Iran-Pakistan energy deal is the payment mechanism. Pakistan and Iran are expected to use a rupee-rial settlement or a barter mechanism, both of which bypass the US-dollar-based international banking system that has historically limited Iran’s ability to receive payment for energy exports. The Asian Clearing Union mechanism, which Pakistan already uses for some bilateral trade, is a likely channel.

The Iran-Pakistan gas pipeline: stalled for years

The most-discussed piece of the proposed arrangement is the Iran-Pakistan (IP) gas pipeline — also called the “Peace Pipeline.” The 2,700 km pipeline was conceptualised in the 1990s to bring Iranian natural gas to Pakistan and onward to India. India withdrew from the project in 2009 under US pressure, leaving the Pakistani section (Iranian border to Balochistan to Sindh) as the unfinished piece.

Progress on the Pakistani section has been stalled for over a decade due to:

US sanctions on Iran: Threat of secondary sanctions deterred Pakistan from completing the project
Financing: The estimated $1.5-2 billion cost of the Pakistani section was difficult to fund under sanctions
Political will: Successive governments wavered between completing the pipeline and deferring to US pressure

The June 2026 US-Iran ceasefire framework changed this calculus. The ceasefire terms include the lifting of US secondary sanctions on Iranian energy exports, which removes the legal barrier to the IP pipeline. Pakistan has signalled it intends to move forward with the project, with construction potentially beginning by Q4 2026.

Why the IP pipeline matters more than ever. With the US-Iran ceasefire in place and Iran seeking new export markets post-sanctions, the IP pipeline becomes commercially viable for the first time in over a decade. For Pakistan, the pipeline offers a fixed-price, overland energy supply that is structurally cheaper than seaborne LNG imports. The completion timeline — if started in late 2026 — would see first gas flow by 2028-2029.

What the deal means for Pakistani consumers

The pass-through to consumer prices depends on how the government structures the deal. Three scenarios:

Scenario	Government action	Consumer effect
Full pass-through	Pakistan State Oil (PSO) and PARCO purchase at discounted prices; pass on to consumers	Petrol and diesel drop by Rs 15-25/litre
Revenue retention	Government keeps part of the savings to fund IMF programme revenue targets	Modest consumer relief (Rs 5-10/litre)
Strategic reserves	Government uses the savings to build strategic petroleum reserves	Minimal immediate effect; long-term stability

The most likely scenario is a hybrid: partial pass-through to consumers (Rs 8-15/litre reduction on petrol and diesel), with the remainder used for fiscal purposes and strategic reserves.

What the deal means for the broader economy

Beyond consumer fuel prices, a Pakistan-Iran energy deal would have wider macroeconomic effects:

Currency and trade balance

The current account deficit would narrow by $1.5-3 billion annually as fuel imports shift from US-dollar-priced international sources to discounted bilateral pricing. The rupee would face less pressure from oil-import-related dollar demand.

Inflation

Energy is a major input cost for transport, manufacturing, agriculture (fertiliser), and food production. A sustained 10-15% reduction in fuel input costs feeds through to lower CPI inflation within 3-6 months.

Industrial competitiveness

Pakistani exporters (textiles, garments, leather, agriculture) would benefit from lower input costs, improving competitiveness against regional rivals Bangladesh and Vietnam.

Fiscal position

The government captures a portion of the savings as petroleum levy on the imported fuel. The IMF programme’s revenue floor depends on petroleum levy performance; an Iran deal at lower prices could either reduce revenue (if pricing is very low) or maintain revenue (if volumes compensate).

A Pakistan-Iran energy deal is not just about cheaper fuel. It is a strategic recalibration of Pakistan’s foreign-policy posture, its currency vulnerability, and its industrial cost structure — all in one package.

What are the risks

The deal is not without complications:

Risk	Mitigation
US sanctions re-imposition if Iran ceasefire collapses	Structure the deal to be reversible; maintain US-dollar alternative supply contracts
Indian objection given Pakistan-Iran history of competing influence	Frame as bilateral economic cooperation; avoid strategic framing
Pipeline security in Balochistan	Deploy enhanced Rangers / FC security along the pipeline route
Refinery compatibility with Iranian crude grades	Pakistan refineries (PARCO, Byco, Cnergyico) can process Iranian crude with minor configuration adjustments
Domestic opposition from US-allied political factions	Government communication strategy emphasising consumer relief and economic benefits
International price benchmark volatility eroding the discount	Long-term contract structure with floor/ceiling pricing

The ceasefire is the keystone. The viability of the Pakistan-Iran energy deal depends entirely on the US-Iran ceasefire holding. If the ceasefire collapses and secondary sanctions are reimposed, Pakistan would face the same secondary-sanctions exposure as in the 2010s. The Pakistan government has indicated it will structure the deal as a phased arrangement, with volumes scaling up only as the ceasefire proves durable.

How it compares to other Pakistan energy deals

Pakistan has multiple parallel energy-import arrangements:

Source	Volume	Pricing	Status
Saudi Aramco (spot + contract)	~120,000 bpd crude	Brent benchmark + premium	Active
UAE (ADNOC)	~80,000 bpd crude	Brent benchmark + premium	Active
Qatar Energy (LNG)	~3.5 mtpa LNG	Henry Hub + liquefaction + shipping	Active, long-term
Russian crude (discounted)	~30,000 bpd	Discount to Brent	Active since 2023
Iranian crude/gas (proposed)	100,000-200,000 bpd + gas	$6-10/bbl discount; $1-2/mmbtu gas discount	Under discussion

The Iran deal would be the largest and most discounted of Pakistan’s energy import arrangements if it moves forward. For comparison, Russian crude imports — already active — have saved Pakistan approximately $300-500 million annually at current volumes. An Iranian deal at 3-5× that volume would save 3-5× that amount.

What happens next

The proposed timeline for the Pakistan-Iran energy deal:

Q3 2026: Joint ministerial commission meeting — both sides present draft framework
Q4 2026: Pricing and volume framework agreed; payment mechanism confirmed
Q1 2027: Inter-governmental agreement signed; commercial contracts initiated
Q2 2027 onwards: First Iranian crude cargoes arrive in Pakistan; pipeline construction begins in parallel
2028-2029: IP pipeline operational; gas flow to Sindh and Punjab

This timeline assumes the US-Iran ceasefire holds and Pakistan’s IMF programme continues without disruption.

The historical window is open. For the first time since the 2010s, Pakistan has a realistic path to discounted Iranian energy. The combination of US-Iran ceasefire, Pakistan’s IMF-backed economic reform agenda, and Iran’s need for new export markets creates a unique window. Whether the political will exists in both Islamabad and Tehran to convert the opportunity into a signed deal is the open question.

Frequently asked questions

Will the deal require US approval?Under the June 2026 US-Iran ceasefire framework, secondary sanctions on Iranian energy exports are lifted. Pakistan’s deal with Iran would operate within this framework. If the ceasefire collapses, secondary sanctions would be reimposed and the deal would need restructuring.

How much cheaper will fuel be for Pakistani consumers?Best case: Rs 15-25 per litre reduction on petrol and diesel. Realistic case: Rs 8-15 per litre. The pass-through depends on government fiscal policy — how much of the savings it retains versus passes to consumers.

Is the IP pipeline finally going to be built?Indications from both Pakistani and Iranian officials suggest the IP pipeline construction will begin in late 2026 or early 2027. The first gas flow is expected in 2028-2029. This is the strongest commitment to the project in over a decade.

Will India be involved?India withdrew from the IP pipeline project in 2009 under US sanctions pressure. There is no current indication that India will rejoin. The Pakistani section (Iran to Pakistan) is proceeding bilaterally.

What are the security risks along the IP pipeline route?The pipeline passes through Balochistan, which has historically seen insurgent activity. The government has indicated that enhanced Rangers / Frontier Corps security will be deployed along the route. For more on the broader security landscape, our coverage of recent incidents provides context.

Can Pakistan afford the pipeline?The estimated $1.5-2 billion cost of the Pakistani section can be financed through a combination of government funding, Chinese loans (under CPEC framework), Iranian credit, and multilateral development bank support. Pakistan is in discussions with all four channels.

What does the deal mean for PSO and PARCO?Both PSO (Pakistan State Oil) and PARCO (Pakistan Arab Refinery Company) would be the primary off-takers of Iranian crude. The deal expands their procurement options, improves margins, and reduces reliance on Saudi / UAE sources.

Does this mean US-Pakistan relations will deteriorate?Pakistan has signalled it will carefully manage the relationship with both Iran and the US. The deal operates within the US-sanctioned framework (per the ceasefire), so technically there is no violation. The relationship is likely to be managed rather than deteriorate.

Related coverage on Life in Pakistan

For the broader context on how the US-Iran ceasefire is reshaping regional energy flows, see our recent Pakistan’s diplomatic mediation of the US-Iran conflict coverage. For the parallel IMF programme that intersects with the energy deal, our Federal Budget 2026-27 highlights article covers the fiscal framework. For the security dimension around energy infrastructure in Balochistan, our fuel price increase impact coverage explores the broader consumer-side picture.

Sources: Ministry of Energy (Petroleum Division), Ministry of Foreign Affairs, Pakistan State Oil (PSO), PARCO, US State Department June 2026 ceasefire framework text, Iranian Ministry of Petroleum, SBP monthly economic updates, IMF Article IV report, ARY News, Samaa TV, Dawn, Business Recorder, The News International, Express Tribune, Geo News. Pricing and volume figures current as of June 28, 2026; specific terms of any deal remain under negotiation.