Energy prices surged on Tuesday, sending stocks tumbling and the dollar rising as investors worried about inflation and the inability of central banks to help with interest rate cuts.

World oil prices soared around nine percent and European natural gas prices rocketed for a second day running as the war disrupted Middle East exports.

Brent North Sea crude, the international benchmark, topped $85 a barrel for the first time since July 2024.

The US and Israeli attacks on Iran and its retaliation across the region have upended regional energy flows, with the crucial Strait of Hormuz — through which about a fifth of global oil transits — effectively closed off.

The war has also fuelled fears of a fresh energy crisis that could ramp up inflation.

“The higher energy costs are fueling inflation concerns, pushing out rate cut expectations for some and increasing rate hike possibilities for others, while also raising earnings concerns that stem from higher operating costs and a potential slowdown in consumer spending,” said Briefing.com analyst Patrick O’Hare.

Wall Street’s main indices opened sharply lower, with the tech-heavy Nasdaq Composite dropping two percent.

European markets were hit even harder with losses of three per cent and more.

“European markets are being hit hard as the full inflationary impact of the war in Iran truly comes home to roost,” said Joshua Mahony, chief market analyst at Scope Markets.

Data showed an unexpected rise in eurozone core inflation, adding to concerns.

Forex.com analyst Fawad Razaqzada said that the inflation concerns have diminished chances of an interest rate cut in the eurozone.

“That’s why we have seen a huge drop in stock markets today with even gold also unable to find much love,” he said.

The European Central Bank’s chief economist Philip Lane said in an interview with the Financial Times published on Tuesday that a lengthy Middle East conflict and sustained drop in energy supplies could trigger a “spike” in eurozone inflation and hit regional growth.

Threat to energy supplies

New strikes were reported Tuesday across the Middle East, including Israeli bombardment on Lebanon and a drone attack on the US embassy in Saudi Arabia’s capital Riyadh.

The conflict started with US and Israeli strikes on Iran over the weekend, which sparked retaliatory Iranian attacks and showed no sign of abating as it entered its fourth day.

Iran has unleashed missiles and drones across the Middle East, including at Saudi Arabia, Qatar and Dubai, while threatening explicitly to drive up global energy costs.

A general in Iran’s Revolutionary Guards threatened to “burn any ship” seeking to navigate the Strait of Hormuz.

The Dutch TTF natural gas contract, considered the European benchmark, shot up more than 40 pc to over 60 euros on Tuesday — its highest level since January 2023, in the wake of the price spike triggered by the Ukraine war.

European natural gas prices had surged 50 pc on Monday after Qatar’s state-run energy firm said it had halted liquefied natural gas production due to strikes.

The rise in energy costs could give most central bankers a headache as they look to bring down inflation while also cutting interest rates to support their economies.

“A spike in energy prices creates a dilemma for central banks,” said Rodrigo Catril at National Australia Bank.

“Stagflation makes central banks very uncomfortable, a longer-lasting energy shock is inflationary and at the same time it weakens growth,” he added, referring to a high inflation and low growth environment.

The dollar, seen as a safer bet in times of economic unrest, extended gains against major rivals.

Asian equities extended Monday’s losses, with Seoul diving more than seven pc as investors returned from a long weekend.

Tokyo shed more than three pc while Hong Kong, Shanghai, Sydney, Wellington, Taipei and Jakarta were also sharply lower.

ISLAMABAD: Ill-planned surplus generation capacity, low plant utilisation, high fixed costs and inefficient generation dispatch have become a permanent source of high consumer-end power tariffs, as well as a financial drain on the power sector and the federal budget, says the power regulator’s annual report.

The National Electric Power Regulatory Authority’s (Nepra) Annual Report on the Performance of Power Plants in Pakistan FY2024-25 said: “Overall, the [power] sector’s high fixed costs, low utilisation, and inefficient dispatch of generation resources collectively resulted in higher electricity tariffs and financial stress on the power system.”

It further said, “In summary, achieving an economically sustainable power sector requires thorough evaluation of the financial and economic consequences before adding new generation capacity. Simply expanding capacity without assessing its cost-effectiveness and expected utilisation can result in inefficiencies such as under-used assets and increased electricity costs for consumers.”

It added that a balanced strategy that considered long-term financial factors — including capacity purchase price (CPP), energy purchase price (EPP), and overall grid stability — was crucial to ensuring generation capacity matched actual demand, optimising the use of available resources and incorporating flexible solutions, such as renewable energy, alongside more cost-efficient technologies.

By carefully analysing the economic impact of each new capacity addition, the power sector could minimise unnecessary financial strain, improve efficiency, and help reduce electricity tariffs for consumers, the report said.

During FY2024-25, the overall utilisation of thermal power plants stood at 42.5 per cent of capacity while renewable energy plants operated at an average utilisation of 36.6pc.

“This underutilisation, coupled with excess installed capacity, led to a significant rise in per-unit electricity costs, primarily due to higher capacity payments”.

The total power purchase cost during the fiscal year — excluding electricity imported from Iran — was recorded at Rs2.943 trillion, of which 61pc comprised CPP and 39pc EPP. The per-unit CPP averaged Rs14.3/kWh and the EPP Rs9/kWh.

“The elevated CPP stemmed mainly from surplus capacity and low plant utilisation, whereas the EPP was driven higher by dependence on costly imported fuels such as regasified liquefied natural gas (RLNG), residual furnace oil and imported coal”.

Conversely, plants based on indigenous fuels — such as nuclear, Thar coal, and local gas — offered substantially lower generation costs but remained underutilised. Among these, Uch Power and Uch-II Power Plants, both operating on dedicated gas fields, demonstrated low generation costs of around Rs13.4/kWh during FY2024-25, yet their utilisation factors remained modest at 80.9pc and 71.6pc, respectively, against their availability factors of 92.4pc and 95.7pc, the report stated.

These plants are ranked among the top in the economic merit order and represent some of the most economical generation sources in the national fleet; however, their limited utilisation restricts potential cost savings for the system. This underutilisation has led to increased reliance on expensive imported-fuel power plants, ultimately raising consumer-end tariffs through higher monthly fuel price adjustments, according to the report.

Furthermore, it said, depletion of the Uch Gas Field — a mature reservoir — poses a risk to the future sustainability of these plants. Ensuring optimal utilisation of these cheaper indigenous gas plants and managing their fuel supply proactively are therefore critical to reducing overall system costs and maintaining energy security.

Similarly, Thar coal-based power plants — another category of indigenous and cost-effective generation sources — operated at an average utilisation factor of only 72.9pc during FY2024- 25, despite their highly competitive energy cost. These plants are also ranked among the top in the economic merit order; however, their underutilisation has resulted in the dispatch of expensive imported-fuel power plants, thereby increasing the consumer-end tariff through monthly fuel price adjustments, Nepra noted in its report.

In parallel, it said, the transition of Lucky Electric Power Company Limited (LEPCL) from imported to indigenous Thar coal mainly depended on the availability of coal supply from the Thar coal mines and the timely completion of the Thar Rail Link Connectivity Project being implemented by Pakistan Railways.

LEPCL has expressed its concerns regarding delays in the rail link project. While Segment-I of the project — linking the Thar coalfield to the main railway network — is expected to be completed by June/July 2026, Segment-II, which includes the branch line and the common coal unloading facility at Port Qasim, remains pending and has not yet entered the construction phase.

According to LEPCL, the potential delay in Segment-II could hinder the transport of 10–12 kilotonnes per day of Thar coal required for its plant operations, thereby necessitating continued reliance on imported coal until both segments are fully operational. The company has conveyed that the absence of synchronised completion of both segments may result in underutilisation of investment in Segment-I and defer the intended transition from imported to local coal.

Transmission bottlenecks and grid constraints restricted the dispatch of cheaper power from the southern region to demand centres in the north, resulting in greater reliance on expensive imported fuel–based plants.

The prolonged outages of the Neelum Jhelum Hydropower Plant and Guddu 747 megawatt unit further weakened cost efficiency, the report stated. Renewable energy sources, it said, also faced curtailments due to intermittency and evacuation limitation, resulting in non-project missed volume payments exceeding Rs13 billion.

The report highlighted that varying load and the intermittent renewable generation led to increased part-load operations of thermal plants, adding Rs44.6bn in partial load adjustment costs during FY2024-25.

It confirmed the technical feasibility of drawing 2,000 MW power from the National Grid under the existing configuration but pointed out that K-Electric’s operational and commercial arrangements, including the “Take-or-Pay” RLNG Gas Supply Agreement for Bin Qasim Power Station-III and related part-load operation charges, continue to influence its generation mix and power drawl patterns.

To achieve long-term sustainability, the regulator emphasised the need for optimising generation capacity in line with actual demand, prioritising the use of low-cost indigenous fuels, expediting transmission upgrades to remove regional constraints, restoring non-operational low-cost plants, and carefully evaluating the economic implications of future capacity additions. A balanced generation mix and enhanced system efficiency are imperative for reducing electricity costs, improving reliability and ensuring a financially sustainable and resilient power sector, Nepra concluded.

The Pakistani rupee remained largely stable against major foreign currencies on Tuesday, trading within a narrow band in both the interbank and open markets as market participants awaited fresh economic cues.

According to the latest exchange rates published by forex.pk, 1 US dollar was valued at Rs280.6 in the open market on Tuesday afternoon, reflecting minimal change in trading activity. This open-market rate indicates marginal volatility movement in currency demand and supply.

Among other major currencies, the euro was quoted at around Rs328.3, while the British pound was trading near Rs378, according to the same source.

The UAE dirham and Saudi riyal were close to Rs75.5 and Rs74.5, respectively, underscoring broad stability across key exchange rates.

Market watchers said traders were still digesting global economic developments alongside domestic indicators, including monetary policy trends, commodity prices, and geopolitical dynamics that could influence short-term currency direction.

This backdrop has contributed to range-bound activity and controlled fluctuation in both interbank and open market segments. Analysts described the rupee’s performance as reflective of cautious stability, with limited volatility across major currency pairs.