- Debt Crisis and Dependency on China: Pakistan’s significant debt burden, especially due to Chinese loans from CPEC projects, restricts its ability to invest in oil exploration and infrastructure, with much of the potential oil revenue likely to go towards debt repayments rather than national development.
- Political Instability and Leadership Vacuum: Pakistan’s chronic political instability, frequent leadership changes, and lack of long-term policy implementation hinder its ability to effectively manage large-scale projects like oil extraction, reducing foreign investor confidence.
- Terrorism and Oil Smuggling Threat: Terrorist groups such as the Tehrik-i-Taliban Pakistan (TTP) pose a severe risk to oil production, with the likelihood of attacks on infrastructure and the illegal smuggling of oil, potentially diverting profits from the government to militant organizations.
Pakistan has recently made headlines with claims of discovering one of the largest oil reserves in the world, said to be the 4th largest. According to a media source, a significant natural gas and petroleum deposit has been found in Pakistan’s territorial waters. This deposit is so enormous that its development could alter the course of the nation.
To confirm the existence of the oil and gas deposits, a three-year survey was conducted in cooperation with a friendly country a senior security official was quoted by DawnNewsTV. The discovery, if confirmed, has the potential to reshape Pakistan’s economy by providing much-needed energy resources and potentially catapulting the country into the ranks of major oil-producing nations. However, despite the promise of these reserves, several key challenges including crushing debt, political instability, and the influence of terrorist groups threaten to undermine the country’s ability to fully capitalize on this opportunity.
It is important to recall that, as per a joint declaration from the two nations, China and Pakistan have decided to increase mining cooperation and encourage the implementation of a treaty on enhancing mining development and industrial collaboration.
Pakistan’s Oil Discovery
Reports suggest that Pakistan’s newly discovered oil reserves could hold significant quantities of crude oil, enough to place the country in the top tier of global producers. This discovery comes at a time when Pakistan is struggling with energy shortages, rising oil prices, and a rapidly depleting foreign exchange reserve. If tapped efficiently, these reserves could not only meet the domestic demand but also generate export revenues that would help Pakistan reduce its trade deficit and strengthen its currency.
The discovery was made in the Indus Basin, a region where exploration has been ongoing for decades. Experts claim that the reserves could amount to billions of barrels, making it a game-changer for Pakistan’s struggling energy sector. However, this discovery is just the first step, and there are significant technical and financial hurdles that Pakistan must overcome before the oil can start flowing.
Challenges to Exploiting the Oil Reserves
1. Debt Crisis and Dependence on China
Pakistan’s public debt has soared to unsustainable levels, with a significant portion owed to China due to infrastructure projects under the China-Pakistan Economic Corridor (CPEC). Pakistan is under pressure from its lenders, including the International Monetary Fund (IMF), to implement economic reforms that could make it difficult to focus on the massive investment required to extract and refine the oil.
Pakistan’s economic dependence on China further complicates the situation. China’s growing influence through the Belt and Road Initiative (BRI) and CPEC projects has left Pakistan in a debt trap. The country owes billions of dollars in loans to China and faces interest payments that strain its budget. Any profits from oil extraction would likely go towards repaying debts, leaving little room for reinvesting in the oil industry or using revenues for national development.
This debt dependency limits Pakistan’s bargaining power in negotiating exploration and development deals. Chinese companies could demand favourable terms, potentially taking a significant share of the oil profits, thereby minimizing Pakistan’s economic gains.
2. Political Instability and Lack of Leadership
Another major obstacle in exploiting these oil reserves is the lack of strong political leadership in Pakistan. The country has been marred by political instability, frequent leadership changes, and weak governance structures. Successive governments have failed to implement long-term economic policies, and the country’s volatile political climate makes it difficult to ensure a consistent approach to oil exploration and production.
Without a clear, unified political vision and stable leadership, Pakistan’s oil sector may struggle to attract the necessary foreign investments or to build the infrastructure needed to exploit its newfound oil wealth. The lack of political cohesion, combined with internal power struggles, could slow down or even derail oil production efforts, further deepening the economic crisis.
3. Terrorist Influence and Oil Smuggling
The presence of various terrorist groups operating within Pakistan, particularly in remote areas near the oil reserves, presents a significant security threat. Terrorist groups, including the Tehrik-i-Taliban Pakistan (TTP) and others, have a history of controlling smuggling routes and illicit trades, and oil would likely become a prime target. These groups could disrupt the oil extraction process, either by attacking infrastructure or by gaining control over portions of the supply chain.
Oil smuggling could become rampant, with militant groups siphoning off large quantities of oil for sale on the black market. This would rob the Pakistani government of critical revenues and further destabilize the region. Given Pakistan’s history of dealing with terrorism, it is unlikely that the state would be able to fully secure its oil fields without significant military intervention. This could lead to protracted conflicts in the oil-rich areas, deterring foreign investors and making it difficult for Pakistan to produce oil at scale.
Why Pakistan Cannot Capitalize on the Discovery
Despite the discovery of such a vast oil reserve, Pakistan’s ability to convert this potential into economic gains is limited by several factors:
1. Economic Constraints
The massive debt burden, particularly to China, severely limits Pakistan’s financial flexibility. Profits from oil would likely be consumed by debt repayments and interest, leaving little for economic development. Additionally, the cost of building infrastructure — from refineries to pipelines — is enormous, and Pakistan may not have the funds or international credibility to attract investors.
2. Lack of Political Will
The inability of Pakistan’s political leaders to implement consistent policies is another critical hindrance. Leaders have prioritized short-term political gains over long-term development, which has led to poor governance and corruption. Without a focused and strategic approach, oil production could be mismanaged, leading to delays, inefficiencies, and lost revenue opportunities. Pakistan has struggled with frequent changes in government, weak governance structures, and a political climate rife with internal power struggles. This has failed to implement long-term economic policies that are essential for sectors like oil exploration and production, which require sustained commitment and strategic planning over several years.
3. Frequent Leadership Changes
Since its creation in 1947, Pakistan has experienced numerous military coups, the frequent ousting of civilian governments, and periods of political unrest. These frequent leadership changes have led to policy inconsistency, with each new government either undoing the work of its predecessor or being too preoccupied with political survival to focus on long-term development.
For instance, the overthrow of civilian governments by military rulers—such as Ayub Khan’s coup in 1958, Zia-ul-Haq’s takeover in 1977, and Pervez Musharraf’s coup in 1999—disrupted any long-term economic plans that had been set in motion. Civilian governments, such as those led by Benazir Bhutto, Nawaz Sharif, and most recently Imran Khan, have been toppled or removed from office, leading to a lack of continuity in governance and economic policy. This political churn has made it difficult for Pakistan to establish stable governance structures that could focus on major initiatives like oil exploration.
Recent Political Unrest and Imran Khan’s Ouster
The most recent example of political instability can be seen in the ouster of Prime Minister Imran Khan in April 2022. Khan’s removal through a no-confidence vote sparked massive protests and deepened the political crisis. His government was seen as one that had attempted to break from the traditional political elite in Pakistan, but it also struggled with economic mismanagement and mounting debt. After his removal, the country’s political landscape became even more fractured, with Khan’s Pakistan Tehreek-e-Insaf (PTI) party opposing the coalition government led by Prime Minister Shehbaz Sharif, causing further political polarization.
This political chaos makes it difficult for Pakistan to maintain a consistent and focused approach to major infrastructure projects. Khan’s government had launched various development initiatives, but the lack of a smooth transition of power means that many of these projects are either stalled or face major delays. Political factions are more focused on their survival and consolidating power rather than developing a coherent energy policy to exploit newly discovered oil reserves.
4. Security Risks
The presence of terrorist groups poses a major risk to oil production. These groups are likely to exert control over oil supplies through smuggling and extortion, further weakening Pakistan’s economic prospects. Unless the state can ensure security in the oil-producing regions, much of the wealth from the discovery could end up in the hands of militant organizations rather than benefiting the nation.
5. International Pressure and Sanctions
Pakistan’s geopolitical situation further complicates matters. The country faces diplomatic challenges and pressure from Western nations, particularly over its handling of terrorism and its close ties with China. These pressures could result in sanctions or strained relationships that may hinder Pakistan’s ability to attract foreign investment or export its oil.
While Pakistan’s discovery of one of the world’s largest oil reserves has the potential to transform the country’s economy, significant obstacles stand in the way of realizing this opportunity. Crushing debt, political instability, the influence of terrorist groups, and security risks all pose serious challenges to the country’s ability to develop these resources. Unless Pakistan can address these internal and external issues, the oil reserves may remain untapped, and the promise of economic prosperity will go unfulfilled. The future of Pakistan’s oil industry will depend not only on its ability to extract and produce oil but also on its capacity to reform its political and economic systems, ensuring that oil wealth benefits the nation as a whole.
(Prajwal has a Master’s Degree in International Affairs from O P Jindal Global University, Sonipat. Views expressed are author’s own)
References:
- Report, D. (2024, September 7). Massive oil, gas reserves found in Pakistani waters: Senior security official. DAWN.COM. https://www.dawn.com/news/1857415
- Sarkar, H., & Coghill , K. (2024, June 9). China, Pakistan agree to strengthen mining, oil and gas cooperation | Reuters. https://www.reuters.com/markets/asia/china-pakistan-agree-strengthen-mining-oil-gas-cooperation-2024-06-09/
- Sekhar, – Metla Sudha, Rai, – Sachenkumar, Gupta, – CA Rahul, Haque, – Ameen, Aaker, – Dr. David, Gratton, – Lynda, Arora, – Vipul, & Gupta, – Dr. C.P. (2024, September 9). Pipedream or stroke of luck? Pakistan finds hope at bottom of the sea. The Economic Times. https://economictimes.indiatimes.com/news/international/world-news/pipedream-or-stroke-of-luck-pakistan-finds-hope-at-bottom-of-the-sea/articleshow/113153902.cms?from=mdr
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