ISLAMABAD – In a significant shift in its export payments policy, Pakistan has made its first government-to-government import of discounted Russian crude oil, paying in Chinese currency instead of US dollars. This move comes as Pakistan faces an economic crisis, with an acute balance of payments problem and the risk of defaulting on its external debt. The discounted Russian crude oil offers a respite for the country, as its foreign exchange reserves held by the central bank are barely sufficient to cover a month of controlled imports.
Under the agreement reached earlier this year between Islamabad and Moscow, the first cargo of discounted Russian crude oil arrived in Karachi on Sunday and is currently being offloaded at the port. Pakistan’s Petroleum Minister, Musadik Malik, confirmed that the payment was made in Chinese Renminbi (RMB), but did not disclose the commercial details of the deal, such as pricing or the discount received by Pakistan.
This purchase of crude oil under Pakistan’s first government-to-government deal with Russia amounts to 100,000 tonnes, with 45,000 tonnes already docked at the Karachi port and the remaining 55,000 tonnes en route. The grade of the Russian crude oil purchased by Pakistan is Urals, which is one of the lighter crudes available.
Pakistan’s purchase of Russian crude oil not only provides the country with a vital energy resource but also offers Russia a new market as it diverts oil from Western markets due to the Ukraine conflict. With growing sales to India and China, Pakistan’s purchase serves as another outlet for Russian oil.
In addition to this development, Pakistan has recently outlined a process to establish barter trade with Russia, Afghanistan, and Iran. This move indicates that the South Asian economy is actively seeking alternative avenues to buy and sell commodities without relying heavily on the US dollar. Analysts suggest that this shift towards barter trade could signify a move from West to East.
Pakistan’s Refinery Limited (PRL) will initially refine the Russian crude oil. Minister Malik assured that all necessary tests and trials have been conducted, confirming the suitability of the Russian crude for local refining and marketing. Addressing concerns about financial viability and the ability of local refineries to process Russian crude, Malik stated that various product mixes have been considered, and under no scenario will refining this crude result in a loss. He expressed confidence in the commercial viability of the project.
To ensure optimal refining, the Russian crude oil will be mixed with approximately 60-70% Arabian light crude. Malik emphasized that no adjustments are needed at the refinery to process the Russian crude.
Given that energy imports constitute a significant portion of Pakistan’s external payments, Islamabad aims to target one-third of its total oil imports from Russia. In 2022, Pakistan imported 154,000 barrels per day (bpd) of oil, similar to the previous year’s figures, as reported by analytics firm Kpler. Minister Malik expressed the intention to increase the share of Russian crude in Pakistan’s oil imports, reducing the dependence on traditional suppliers such as Saudi Arabia and the United Arab Emirates.
This shift in import payments policy, combined with the exploration of new trade avenues, reflects Pakistan’s efforts to diversify its economic partnerships and reduce reliance on the US dollar. By embracing Chinese currency and fostering closer ties with Russia, Pakistan aims to strengthen its economic stability and overcome its balance of payments challenges
