Illegal trade in petroleum, oil, and lubricants (POL) has become one of Pakistan’s most damaging underground businesses, distorting energy markets, draining public revenue, and weakening already fragile macroeconomic stability. At its core is the inflow of cheap, untaxed fuel from Iran and the diversion of taxed fuel into black channels inside Pakistan, creating a parallel system that competes directly with the formal oil supply chain.
Official and industry data illustrate the scale. The Oil and Gas Regulatory Authority estimates that about 4,000 tons of fuel are smuggled into Pakistan from Iran each day. This flow is linked to revenue losses of roughly Rs. 10.2 billion per month in foregone customs duties, petroleum levy, and sales tax. The Oil Companies Advisory Council has cautioned that illegal trade in diesel and petrol can strip the government of around Rs. 1.5 billion in revenue every day when smuggling is at full strength.
Geographically, the problem is rooted in Pakistan’s western border, but its impact is national. The Iran–Pakistan frontier in Balochistan functions as a significant corridor for organised fuel caravans, with tankers, pickups, and motorbikes moving petrol and diesel across informal crossings. Studies indicate that billions of litres of Iranian fuel enter Pakistan annually, and that a substantial share ultimately reaches Sindh, Punjab, and Khyber Pakhtunkhwa. At the retail level, it is sold through informal stations, roadside sellers, and disguised outlets. A recent official review identified more than 500 illegal petrol stations and over a hundred known fuel smugglers active across the country.
The economic consequences are immediate. Pakistan loses badly needed revenue just as it is trying to stabilize public finances and meet external commitments. Research on broader illegal trade concludes that smuggling and related practices in sectors such as petroleum products contribute to aggregate tax losses of hundreds of billions of rupees each year, bringing the overall estimate to around Rs. 750 billion per annum from smuggling and illegal manufacturing in key sectors. Legal fuel suppliers, refineries, and transport companies see their volumes eroded by untaxed competition. Reported diesel sales fall sharply when smuggled Iranian fuel floods the market, forcing refineries to cut throughput and discouraging investment in storage, logistics, and pipeline infrastructure.
There are also serious governance and social costs. Fuel smuggling networks often depend on payoffs to intermediaries and corrupt officials, which weakens enforcement culture along the border and on major highways. In some border districts, many households depend directly or indirectly on carrying or selling smuggled fuel, complicating efforts to shut down the trade without parallel livelihood measures. Unregulated storage and transport of petrol and diesel bring heightened risks of fires, spills, traffic accidents, and local environmental damage, as fuel moves through informal depots and unsafe roadside facilities.
In response, the state has begun to act more forcefully. Over the past two years, the federal government has launched crackdowns on fuel smuggling involving Pakistan Customs, the Frontier Corps, provincial authorities, and the Federal Board of Revenue. Pakistan’s anti-smuggling drive led to a sharp, temporary increase in recorded fuel sales as smuggled supplies were pushed back. Customs Enforcement Karachi and marine units have intercepted launches and coastal shipments carrying Iranian diesel. At the same time, inland enforcement has closed illegal depots and seized tankers and bowsers along the northern bypass and coastal routes.
Policy tools are evolving in parallel. Digital tracking of fuel movements, stricter documentation for tanker traffic, and proposals for fuel marking systems aim to make it harder to mix smuggled fuel with legal supplies, building on international practice to combat fuel black markets. The Petroleum Amendment Act 2025 seeks to update penalties and clarify provincial responsibilities for shutting unauthorized outlets, with the federal government directing provinces to implement stronger checks in their jurisdictions. However, enforcement remains uneven and smugglers quickly adjust routes and tactics when pressure eases.
For Pakistan, bringing illegal POL trade under control is not only a policing matter but a structural economic priority. Narrowing the price gap with Iran through rational domestic pricing, investing in modern border management, and delivering predictable, rules-based enforcement can shrink the space for smuggling. Over time, formalizing fuel trade would protect revenue, stabilize the energy market, support compliant businesses, and move Pakistan closer to genuine economic independence.