Impact of Energy Markets on Pakistan's Agriculture

Modern agriculture in Pakistan is closely tied not only to natural resources such as land and water but also to the dynamics of global energy markets. The sector’s reliance on fossil fuels is substantial: diesel powers tractors, harvesters, and irrigation tube wells, while natural gas serves as a key input in the production of fertilizers such as urea. As a result, fluctuations in international energy prices are quickly transmitted into domestic agricultural costs. Recent fuel price hikes, driven by geopolitical conflicts and global supply disruptions, have significantly increased the cost of cultivation, influencing farmers’ input use decisions, cropping patterns, and ultimately food prices and food security outcomes in Pakistan.

Global energy markets experienced unprecedented volatility. The post-COVID economic recovery increased demand for oil and gas, while supply chains struggled to adjust. The Russia-Ukraine conflict pushed crude oil prices above $120 per barrel, triggering a global energy shock. Simultaneously, ongoing tensions in the Middle East, particularly involving Iran, added further uncertainty to supply expectations. For Pakistan, which imports a large share of its energy requirements, these developments translated into sharp increases in domestic fuel prices, especially diesel.

The implications for agriculture have been immediate and far-reaching. Higher diesel prices have raised the cost of land preparation, irrigation, and transportation, while increases in gas prices have escalated fertilizer costs. Smallholder farmers, who already operate under tight financial constraints, are particularly vulnerable, often reducing input use, which can negatively affect crop yields. Moreover, rising transportation costs contribute to higher food prices, amplifying inflationary pressures across the economy. In this context, Pakistan’s agricultural sector has become increasingly exposed to external energy shocks, highlighting the urgent need for energy-efficient technologies, alternative energy adoption, and policy measures that can buffer farmers against global market volatility.

Global Oil Market Volatility and Pakistan’s Agricultural Vulnerability

The global oil market underwent significant turbulence between 2021 and 2025, creating far-reaching implications for energy-importing countries such as Pakistan. After the sharp decline in demand during the COVID-19 pandemic in 2020, oil prices rebounded in 2021, surpassing $80 per barrel by year-end as global economic activity resumed. However, the situation escalated dramatically with the Russia-Ukraine war, which disrupted global supply chains and pushed crude oil prices beyond $120 per barrel. This shock generated supply deficits estimated at around 2.5 million barrels per day, intensifying competition in international energy markets.

Further instability emerged from geopolitical tensions in the Middle East, particularly involving Iran. Concerns over potential disruptions in the Strait of Hormuz, a strategic chokepoint through which nearly one-fifth of global oil trade passes, added a geopolitical risk premium of $10 to $15 per barrel. Although prices moderated slightly by 2025, they remained structurally higher than pre-pandemic levels, reflecting persistent uncertainty and tight supply conditions in global energy markets.

For Pakistan, a net importer of oil, these global developments translated into frequent domestic fuel price adjustments. Diesel prices rose sharply, directly increasing the cost of agricultural operations such as land preparation, irrigation, and transportation. This escalation not only compressed farm profitability but also contributed to broader inflationary pressures, reinforcing the strong linkage between global energy markets and domestic agricultural sustainability.

Energy Price Shocks and Agricultural Cost Pressures in Pakistan

Agriculture in Pakistan is deeply dependent on energy inputs, making it highly vulnerable to fluctuations in global oil and gas prices. Diesel remains the backbone of farm operations, powering tractors, tube wells, threshers, and harvesters, particularly in regions reliant on groundwater irrigation such as Punjab and Sindh. This heavy reliance on fossil fuels, combined with the limited adoption of renewable energy technologies like solar-powered irrigation, intensifies the sector’s exposure to external energy shocks. As fuel prices rise, operational costs increase immediately, leaving farmers with little flexibility to absorb these shocks.

A second major transmission channel is fertilizer production. Nitrogen-based fertilizers, widely used in Pakistan’s cropping systems, depend heavily on natural gas as a primary input. When global energy prices surged between 2021 and 2025, domestic fertilizer prices followed, significantly increasing the cost of crop production. Many farmers, particularly smallholders, responded by reducing fertilizer application or shifting toward low-input crops, which can negatively affect yields and soil fertility over time.

Transportation further amplifies these cost pressures. Pakistan’s food supply chains rely predominantly on road networks, where diesel is the main fuel source. Rising fuel prices increase the cost of moving inputs to farms and transporting produce to markets. Given existing inefficiencies in storage, logistics, and market infrastructure, these higher costs are quickly passed on to consumers.

Between 2021 and 2025, these combined pressures led to a sharp rise in agricultural input costs. Fertilizer prices surged globally, while domestic diesel prices increased substantially, raising the overall cost of cultivation. Small farmers, constrained by limited access to credit, were disproportionately affected. Many reduced cultivated areas, delayed mechanization, or cut input use, responses that may weaken long-term productivity.

These rising costs ultimately translated into higher food prices. Increased production and transportation expenses fed directly into food inflation, as energy costs also affected processing, storage, and distribution. The result has been a strong pass-through effect from global energy markets to local food systems, highlighting the structural vulnerability of Pakistan’s agriculture to external economic shocks.

Food Security Pressures and Policy Responses in Pakistan

Rising energy and food prices have significantly strained food security in Pakistan, affecting all four key dimensions: availability, access, utilization, and stability. On the supply side, higher input costs, particularly for fuel and fertilizers, have slowed agricultural production growth, constraining food availability. At the same time, food access has deteriorated sharply as inflation erodes household purchasing power. During peak periods, food inflation in Pakistan exceeded 30 percent, placing basic commodities beyond the reach of many low-income households. Globally, acute food insecurity has surpassed 300 million people, with Pakistan among the countries experiencing heightened vulnerability.

Nutritional outcomes have also been adversely affected. As prices rise, households tend to substitute cheaper, calorie-dense but nutrient-poor foods, reducing dietary diversity and increasing risks of malnutrition. This decline in dietary quality undermines long-term human capital development, particularly among children and vulnerable populations. Moreover, persistent price volatility has weakened stability, making it difficult for both farmers and policymakers to plan production and manage food supplies effectively.

In response, Pakistan has adopted several short-term policy measures, including fertilizer subsidies, support prices for staple crops such as wheat, and targeted relief programs. However, fiscal constraints limit the scale and sustainability of these interventions. Consequently, there is an increasing need to shift toward long-term structural solutions. Reducing dependence on fossil fuels is critical, with solar-powered irrigation emerging as a promising alternative. Adoption of such technologies has already begun to expand, offering cost savings and resilience against energy price shocks.

Additionally, improving energy efficiency through precision agriculture, along with strengthening storage, transportation, and market infrastructure, can reduce post-harvest losses and stabilize supply chains. Looking ahead, building an energy-resilient agricultural system will require coordinated investments in technology, institutional reforms, and social protection mechanisms to safeguard food security in an increasingly volatile global environment.

Conclusion

The experience of Pakistan’s agricultural sector over the past several years clearly demonstrates the deep and often underappreciated link between energy markets and food systems. As global oil and gas prices fluctuated sharply, these shocks were rapidly transmitted into domestic agriculture through higher diesel, fertilizer, and transportation costs. The result has been a significant increase in the cost of cultivation, reduced profitability for farmers, and heightened food inflation, with particularly severe consequences for smallholder farmers who operate with limited financial buffers.

These dynamics reveal a structural vulnerability: Pakistan’s agriculture remains heavily dependent on fossil fuels and external energy markets, making it highly exposed to global geopolitical and economic uncertainties. The cascading effects, from rising input costs to reduced input use, lower productivity, and declining dietary quality, underscore how energy shocks can evolve into broader food security challenges affecting availability, access, utilization, and stability.

While short-term policy responses such as subsidies and price supports have provided temporary relief, they are not fiscally sustainable in the long run. The pathway forward lies in building resilience through structural transformation. This includes promoting renewable energy solutions such as solar-powered irrigation, improving energy efficiency, strengthening supply chains, and investing in agricultural innovation and infrastructure.

Ultimately, ensuring food security in Pakistan requires recognizing energy as a central pillar of agricultural policy. A strategic shift toward energy-resilient and sustainable farming systems will be essential to protect rural livelihoods, stabilize food prices, and safeguard the country against future external shocks.

References: FAO; Global Nutrition Report; Headey et al; IEA; IMF; IRENA; World Bank; WFP.

Please note that the views expressed in this article are of the author and do not necessarily reflect the views or policies of any organization.

The writer is affiliated with the Institute of Agricultural and Resource Economics, University of Agriculture, Faisalabad. Pakistan and can be reached at 1222vvgvv@gmail.com

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