Pakistan has completed its first import of discounted Russian crude oil, using Chinese currency instead of the typically used U.S. dollar.
This shift arrives as Pakistan navigates an economic crisis marked by a severe balance of payments issue, threatening a potential default on its external debt. The country’s foreign exchange reserves are perilously low, barely covering a month’s worth of controlled imports.
Pakistan transitioning to new markets
The discounted Russian crude oil is the first of its kind procured under a deal sealed between Islamabad and Moscow earlier this year. Without revealing the specific commercial details of the agreement, Petroleum Minister Musadik Malik confirmed that the “payment was made in RMB”.
The purchase marks Pakistan’s initial government-to-government transaction with Russia, involving 100,000 tonnes of crude oil, nearly half of which has already docked at Karachi port, with the remainder en route.
This new trade avenue is significant for Pakistan, which is grappling with pressing financial demands.
In the initial stages, the Russian crude oil will be refined by Pakistan’s Refinery Limited (PRL).
Despite concerns about financial viability and the local refineries’ capability to handle Russian crude, Malik reassures that extensive tests have confirmed the crude’s suitability for local refining and marketing.
Refinement will not result in a loss, asserts Malik, emphasizing the commercial viability of this venture.
In addition, no alterations will be necessary at the refinery to process the Russian crude. The imported crude oil, referred to as one of the lighter crudes available, will be combined with approximately 60-70% Arabian light crude for refining.
As for the potential impact on the local market, Malik wouldn’t reveal specific figures but assured it will surely make a difference.
Strategic pivot from West to East
As a strategic move, this shift in trade and currency represents more than just a financial transaction. Pakistan has historically aligned with Western interests, but this new deal with Russia might signal a pivot from West to East.
Earlier this month, Pakistan also announced plans to initiate barter trade with Russia, Afghanistan, and Iran, further indicating a desire to explore trading opportunities outside of the U.S. dollar dominated transactions.
Given the fact that energy imports constitute a majority of Pakistan’s external payments, a successful venture with Russian crude oil could significantly reshape Pakistan’s economic landscape.
In 2022, the country imported an average of 154,000 barrels of oil per day, with the main suppliers being Saudi Arabia and the United Arab Emirates. With the new development, however, Malik stated that the country aims to meet one-third of its total oil imports with Russian crude.
This strategic shift in oil import policy could serve to fortify Pakistan’s economic defenses as it battles the storm of an ongoing financial crisis.
It remains to be seen how this development will unfold and how it will influence both regional and global markets, but it undoubtedly indicates a significant economic recalibration for Pakistan.
The information in this article were gotten from an exclusive Reuters report.
