Recent geopolitical tensions in the Middle East have once again highlighted Pakistan’s continued reliance on imported energy and the associated exposure to global price volatility. With around 85% of oil demand and a growing share of liquefied natural gas (LNG) sourced from international markets, external supply disruptions can quickly translate into higher domestic energy costs, inflationary pressures, and broader macroeconomic instability.
Energy imports account for nearly one-third of Pakistan’s total import bill, contributing to persistent trade deficits and foreign-exchange constraints. The recent war between the US-Israel alliance and Iran, which disrupted shipping through the Strait of Hormuz and caused global oil prices to spike above $100 per barrel, is the latest reminder of this vulnerability.
Progress and Potential
It is encouraging that over the past decade, Pakistan has significantly diversified its energy mix by expanding solar, wind, and hydropower capacity, thereby reducing its reliance on imported fuels. However, this effort can be further strengthened by adopting new technologies, as several countries are already doing. To ensure long-term energy security, future-oriented planning must also consider emerging technologies that are reshaping global energy markets.
The Regional Example: India
India provides a relevant regional example. Through its National Green Hydrogen Mission and the Strategic Interventions for Green Hydrogen Transition (SIGHT) programme, the country is seeking to integrate hydrogen into its future energy mix while improving cost competitiveness. With financial incentives aimed at supporting domestic electrolyser manufacturing and large-scale production of green hydrogen and its derivatives, the initiative reflects a broader industrial strategy to capture opportunities in the evolving global energy economy rather than functioning solely as a subsidy.
It also enables India to access the full potential of its renewable energy, as it is seen as a core part of green hydrogen infrastructure rather than simply another energy input. Pakistan’s engagement with hydrogen, by contrast, remains limited and largely focused on feasibility assessments and pilot initiatives.
Optimising Renewable Energy Utilisation
Hydrogen can improve the overall efficiency and utilisation of Pakistan’s renewable energy resources by providing a flexible pathway to absorb excess electricity generation. As solar and wind capacity expands, periods of surplus production, particularly during high solar output hours or strong wind conditions, may increasingly lead to curtailment if grid demand or transmission capacity is limited.
Converting this surplus renewable electricity into green hydrogen through electrolysis can enable productive use of otherwise underutilised energy, effectively transforming variable power into a storable and transportable energy carrier. In this way, hydrogen can complement grid-scale storage and system-balancing solutions by helping smooth fluctuations in renewable output and supporting greater integration of intermittent generation.
Beyond its role in system flexibility, hydrogen can also contribute to sectoral energy efficiency by enabling renewable electricity to be deployed in applications that are difficult to electrify directly. This can improve the overall load factor of renewable assets, reduce curtailment losses, and enhance the economic viability of large-scale renewable investments.
Export Competitiveness and Carbon Mechanisms
In the absence of a coordinated national framework supported by targeted incentives, the current gradual approach may limit the pace at which domestic industries adapt to emerging global trade measures that increasingly incorporate carbon considerations.
Mechanisms such as the European Union’s Carbon Border Adjustment Mechanism (CBAM) are expected to impose additional costs on carbon-intensive imports, including textiles. Decarbonising industrial production, potentially through green hydrogen, may therefore become essential for maintaining export competitiveness.
Alignment with Carbon Markets
Furthermore, a green hydrogen project supports Pakistan’s Policy Guidelines for Trading in Carbon Markets. The guidelines set out a roadmap to: (i) facilitate development of carbon markets and enable trading of emission-reduction credits; (ii) mobilise international climate finance for mitigation projects; and (iii) encourage emissions-reduction activities in sectors such as energy, agriculture and industry.
A green hydrogen project helps achieve these three objectives, as it demonstrates measurable emissions reductions, avoidance of double counting, long-term sustainability, and community benefits. Over time, such projects could support the creation of a credible domestic carbon-credit supply, enhance access to international mitigation finance, and strengthen Pakistan’s positioning within evolving global carbon-market frameworks.
A Comprehensive Hydrogen Strategy
Looking ahead, Pakistan may benefit from adopting a comprehensive hydrogen strategy that establishes clear production targets, integrates hydrogen into priority industrial applications, and introduces supportive fiscal and regulatory measures. Strategic international partnerships could help mobilise technology transfer, investment, and institutional capacity-building.
While hydrogen projects require substantial upfront capital investment, these costs should be assessed against the broader economic impact of recurring energy supply shocks. The recent Middle East war caused Pakistan’s weekly oil bill to surge from 300millionto800 million — a cost that far exceeds the investment required for energy transition.
Balancing Crisis Management with Structural Reform
In an increasingly uncertain geopolitical environment, strengthening energy security will require balancing immediate crisis management with sustained structural reform. Expanding domestic energy resources while preparing for emerging low-carbon technologies can help reduce vulnerability to global market disruptions and support more stable long-term economic growth.
Conclusion: The Cost of Inaction
Ultimately, the strategic question is not whether Pakistan can afford to invest in future energy systems, but whether it can afford the continuing economic costs of energy vulnerability. The recent war has demonstrated that external shocks can impose massive and immediate costs. Green hydrogen offers a pathway to reduce that vulnerability, enhance energy security, and position Pakistan for a low-carbon future.
The window for action is open. But as the Middle East crisis has shown, it may not remain open indefinitely.
