Can Russian Crude Ease Pakistan’s Economic Woes?

Pakistani authorities are touting the arrival of the first shipment of discounted Russian crude oil as “transformative,” however, analysts say the extent of relief it will bring the country’s crisis-riddled economy is not clear.  

Pakistan’s minister for petroleum, Musadik Malik, told the Reuters news agency that Islamabad paid Moscow for the cargo in yuan, the Chinese currency. The Pakistani government has so far not disclosed the price.

Announcing the arrival of the Russian vessel “Pure Point,” with a little more than 45,000 metric tons of crude oil, Pakistani Prime Minister Shehbaz Sharif said in a tweet Sunday night that the country was moving “one step at a time toward prosperity, economic growth and energy security and affordability.”

Authorities at the southern Karachi Port terminal began offloading the cargo Monday morning. Shariq Amin Farooqi, public relations officer for the Karachi Port Trust, told VOA the entire process would take 26 to 30 hours.  

Economic distress  

The discounted crude shipment comes at a time when import-dependent Pakistan faces a severe liquidity crunch. The country spends the biggest portion of its import funds, around $18 billion annually, on energy and fuel. 

According to recent central bank data, foreign exchange reserves were below $10 billion as of June 2, with the State Bank of Pakistan holding less than $4 billion – barely enough to cover a month of select imports.   

Pakistan has been teetering on the brink of default since last year. Its economy has grown at a rate of 0.29% in the fiscal year ending this month, according to government projections, while annual inflation reached a record high of almost 38% last month.  

Russian deal  

As part of what the government in Islamabad has called a “trial” shipment, Pakistan will receive a total of 100,000 metric tons of crude oil from Russia. The second shipment is expected in a few weeks.  

Islamabad began negotiating for discounted crude oil from Moscow last year in a bid to take advantage of the $60 per barrel price cap placed on Russian oil by the United States and its allies to deprive Moscow of funds in the wake of the war on Ukraine.

The deal was finalized in April after Pakistan’s minister for petroleum, Musadik Malik, led a delegation to Moscow late last year and a Russian delegation visited Islamabad in March to cement the details.   

The Pakistani government has so far not disclosed the payment method or the price at which it is acquiring crude from Moscow.

Dubai-based oil trading expert Ahmad Waqar told VOA that for the deal to truly ease Pakistan’s economic pain, it should include purchase on credit as Pakistan is strapped for cash.  

“In my opinion, right now, more than discount we need to get cargo on credit,” Waqar said.

Pakistan traditionally buys the bulk of its energy from Gulf countries with Saudi Arabia and the United Arab Emirates its top suppliers. While the Saudis have often supplied fuel on credit, Pakistan’s budget for the next fiscal year starting in July does not include any such facility from its Middle Eastern ally.  

Waqar said he believes the cost of getting cargo all the way from Russia via Oman, instead of from Gulf countries located nearby could also chip away at the possible benefit to Pakistan.    

“Russian cargoes are not as cheap as they used to be, let’s say, 10 months ago when India started buying from Russia…There was a different pricing level at the time. Since then, more international traders started buying and prices went up. It’s not possible to now say that ‘I can get Russian cargo very cheaply,’” Waqar said.  

In the past, petroleum minister Malik also tried to downplay the relief Russian oil could provide to Pakistanis at the pump, however, after the arrival of the cargo, local media quoted him saying Pakistanis will see a reduction in prices in a few weeks.  

How much usable fuel will be produced from the Russian crude is also not clear yet. Pakistan Refinery Limited, tasked with processing it, will submit a report to the government detailing the quality and quantity of the products.   

US approval  

Despite initial pushback from Washington, Pakistan’s neighbors China and India’s energy imports from Russia rose after the war in Ukraine began last year, with the latter seeing its purchases increase almost ten-fold since April 2022.  

Responding to Pakistan’s decision to purchase crude oil from Russia, the State Department in April said that it understood the demand for Russian energy and would not interfere in any country’s decision to buy from Moscow.  

“Countries will make their own sovereign decisions. We have never tried to keep Russian energy off the market,” said spokesperson Vedant Patel.    

The Pakistani ambassador to the U.S., Masood Khan, also dismissed concerns that the deal could damage already strained ties between Islamabad and Washington, saying U.S. officials had been consulted.   

“We have placed the first order for Russian oil, and this has been done in consultation with the United States government. There’s no misunderstanding between Washington and Islamabad on this count,” Khan told a gathering at the Washington-based Wilson Center in April.
…