As the Middle East conflict drives oil prices above $100 a barrel and disrupts global energy supplies, Pakistan finds itself at an energy crossroads. While past crises—notably in 2008 and 2022—exposed the country’s crippling dependence on imported energy, there is cautious optimism that changes in Pakistan’s energy mix over the past decade may help cushion the impact, especially for electricity. The rapid expansion of solar energy, the rise of domestic coal, and the growth of nuclear and hydropower have begun to reshape a sector long vulnerable to external shocks.
ISLAMABAD – There is understandable concern that ongoing tensions in the Middle East and the sharp rise in oil prices could once again transmit quickly into Pakistan’s economy, fuelling inflation, eroding foreign exchange reserves, and creating broader macroeconomic stress. The closure of the Strait of Hormuz and the sustained US-Israeli campaign against Iran have already driven global oil prices to two-year highs, with direct consequences for a country that imports the vast majority of its petroleum needs.
Yet the crisis is playing out against a transformed energy landscape. Over the past decade, Pakistan has quietly built a more diversified and resilient energy system—one that may be better equipped to weather the current storm than its predecessors were.
The Solar Boom: A Hedge Against Volatility
The most dramatic transformation has been in solar energy. According to independent energy analyst Alex Harrison of the Secure Energy Project, solar now accounts for an estimated 20-25% of total electricity consumption when both grid-supplied and off-grid generation are included. This solar boom is acting as an effective hedge against potential disruptions around the Strait of Hormuz.
Increased solar adoption is estimated to have reduced oil and gas imports by about 40% between 2022 and 2024, generating savings of over $12 billion by early 2026, with a further $6.3 billion expected by year-end. For a country that has struggled with balance of payments crises, these savings represent a significant buffer against external shocks.
What makes the solar transition particularly significant is that it was driven largely by market forces rather than government subsidies. Falling global prices for solar panels, combined with rising electricity tariffs, created a powerful economic incentive for households and businesses to install rooftop solar. The result has been a decentralized energy revolution that is both reducing import dependence and providing relief to consumers.
The Decline of Imported Fuel Oil
Another source of resilience is the sharp decline in imported fuel oil used for electricity generation, which has fallen from nearly 35% a decade ago to less than 1% today. Much of this gap has been filled by regasified liquefied natural gas (RLNG), which now accounts for roughly 21% of generation. While dependence on imported fuels remains significant, it has fallen by nearly 40%. As a result, the impact of rising oil prices on electricity generation is likely to be more contained than in previous episodes.
This shift has fundamentally altered the relationship between global oil prices and domestic electricity costs. In past crises, surging oil prices would immediately translate into higher electricity generation costs, feeding inflation across the economy. Today, with fuel oil almost entirely phased out of the power mix, the transmission mechanism is much weaker.
Hydropower: Potential Unrealized
Hydropower has also expanded, with generation increasing from about 32,600 gigawatt hours (GWh) to nearly 40,000 GWh over the past decade. This progress could have been greater had projects such as Diamer-Bhasha and Dasu not faced delays and had the Neelum Jhelum project not encountered technical setbacks.
The potential for further expansion remains considerable. Pakistan’s geography offers abundant hydropower resources that, if developed, could provide low-cost, reliable electricity for decades. The delays in key projects represent missed opportunities, but the foundation has been laid for future growth.
Domestic Coal: Thar’s Emerging Role
Another important development is the rise of domestic coal, particularly from the Thar coalfield in Sindh. Its share in grid electricity has grown from negligible levels to over 11%. Production capacity is currently being expanded in a planned manner, with significant implications for energy security.
Beyond electricity generation, Thar coal is set to play a transformative role in agriculture. Under the Coal-to-Fertiliser (C2F) initiative, Thar coal is planned to be used to produce ammonia, which would then be combined with carbon dioxide to produce over 700,000 tons of urea. This would not only meet all domestic fertilizer needs but also allow for exports—a significant departure from Pakistan’s current dependence on imported fertilizers.
Nuclear Energy: A Pillar of Stability
Nuclear energy has emerged as a key pillar of stability. Its share in the energy mix has increased from less than 5% in 2015 to over 16% today. Nuclear plants provide consistent and reliable electricity and are largely insulated from international price volatility, making them an essential component of a resilient energy system.
The growth of nuclear power represents a strategic shift toward energy sources that are immune to the geopolitical shocks that regularly roil global oil markets. While nuclear plants require significant upfront investment, their operating costs are stable and predictable—a valuable attribute in an uncertain world.
Critical Gaps: Transmission, Transport, and Conservation
Despite these gains, several critical gaps remain. Pakistan has not invested adequately in modernizing its transmission infrastructure. Significant inefficiencies persist, leading to high losses and limiting the effective integration of new energy sources. Technologies such as high-voltage direct current (HVDC) systems offer a viable solution by enabling long-distance transmission with lower losses and costs, while improving integration of renewable and remote energy sources.
The transport sector presents the next frontier. It drives 80% of petroleum demand, costing $19 billion annually in imports. With a new auto policy underway, a decisive shift to electric vehicles (EVs) is essential—not only to cut this import bill but also to curb urban air pollution. By adopting a hands-off approach—removing tariffs and non-tariff barriers and aligning petroleum prices with global markets—the government can let market forces drive the EV transition, just as it did with solar adoption.
Energy conservation is another area where progress has been limited. Simple interventions can yield substantial gains. For example, retrofitting existing buildings with energy-efficient technologies or replacing inefficient electric appliances such as fans with energy-efficient models—a proposal under consideration for several years—could reduce electricity consumption by over 50%. At scale, such measures represent one of the fastest and most cost-effective ways to reduce demand and ease pressure on the energy system.
The Path Forward
With consistent policies and targeted investments, Pakistan now has a credible pathway to reduce its dependence on imported energy. Greater reliance on hydropower, nuclear energy, renewables, and domestic coal can meet future demand more securely and enable Pakistan to move away from the recurring cycle of energy-driven economic crises.
The current Middle East crisis is a test of this new energy architecture. While the country is not immune to the shock—fuel prices have risen, and the government has had to allocate Rs125 billion to shield consumers—the impact on electricity generation has been significantly muted compared to past episodes. The solar boom, the decline of fuel oil, and the growth of domestic energy sources are providing a buffer that did not exist in 2008 or 2022.
Analysis: From Vulnerability to Resilience
Pakistan’s energy transformation over the past decade represents a shift from vulnerability to resilience. The country that once watched oil prices rise with dread is now better positioned to absorb external shocks. The solar revolution, in particular, has changed the calculus in ways that policymakers could not have predicted a decade ago.
But the transformation is incomplete. The transport sector remains heavily dependent on imported oil. Transmission infrastructure is inadequate. Energy efficiency measures have not been implemented at scale. And the potential for domestic energy sources—hydropower, coal, renewables—remains only partially realized.
The current crisis is a reminder that energy security cannot be taken for granted. But it is also a validation of the investments and policy choices that have diversified Pakistan’s energy mix. The country that faced the 2022 energy crisis with few options now has a set of tools to manage the current shock.
The question now is whether Pakistan can build on this foundation to complete its energy transformation. The path forward is clear: modernize transmission infrastructure, accelerate the transition to electric vehicles, implement energy efficiency measures, and continue developing domestic energy sources. The investments made over the past decade have created a buffer; the investments made over the next decade will determine whether Pakistan can finally break free from the cycle of energy-driven economic crises.
