ISLAMABAD – In a significant shift in its US dollar-dominated export payments policy, Pakistan paid for its first government-to-government import of discounted Russian crude oil in Chinese currency.
As Pakistan faces an economic crisis with an acute balance of payments problem and risks a default on its external debt, discounted Russian crude oil offers a respite because the foreign exchange reserves held by the central bank are scarcely enough to cover a month of controlled imports.
Under a deal struck between Islamabad and Moscow earlier this year, the first cargo of discounted Russian crude oil arrived in Karachi on Sunday and is currently being offloaded at the port.
Speaking to Reuters, Pakistan’s Petroleum Minister Musadik Malik did not give the commercial details of the deal, including pricing or the discount that Pakistan got, but confirmed that the “payment (was) made in RMB)”.
First G2G deal with Russia
Malik said the purchase of crude under Pakistan’s first government-to-government (G2G) deal with Russia consisted of 100,000 tonnes. As much as 45,000 tonnes have docked at the Karachi port and the remaining 55,000 tonnes is on its way. Pakistan had made the purchase in April this year. About the grade of the Russian crude oil Pakistan has purchased, Malik said it is Urals, one of the lighter crudes available.
A new market for Russia
As it redirects oil from Western markets because of the Ukraine conflict, Pakistan’s purchase gives Moscow a new outlet to add to growing sales to India and China.
Earlier this month, Pakistan outlined a process to open barter trade with Russia, Afghanistan and Iran, another sign of the South Asian economy seeking avenues to buy and sell commodities without trading in dollars. Analysts say the move could be a shift from West to East.
Where will Pakistan refine Russian crude oil?
Pakistan’s Refinery Limited (PRL) will initially refine the Russian crude oil. According to Malik, all the tests and trials had been done and the Russian crude was fit to refine and market locally.
Malik played down concerns about the financial viability and local refineries’ ability to process Russian crude. He said, “We’ve run iterations of various product mixes, and in no scenario will the refining of this crude make a loss.” “We are very sure it will be commercially viable,” he added.
Malik said it will be mixed with around 60-70% Arabian light crude for refining. He said, “No adjustments (were) needed at the refinery to refine the Russian crude.”
‘Looking to target one-third of Pakistan’s total oil imports from Russia’
Energy imports make up the majority of the Pakistan’s external payments. Islamabad imported 154,000 bpd of oil in 2022, around the same as the previous year, data from analytics firm Kpler showed. “We’re looking to target one-third of our total oil imports at the Russian crude,” Malik said.
The crude was predominantly to Pakistan supplied by the world’s top exporter Saudi Arabia and then the United Arab Emirates.
