Pakistan Pursues Oil Deal With Russia

The pulse | Economy | South Asia

Despite Western sanctions on Russia over its invasion of Ukraine, the United States has not openly opposed Pakistan buying oil from Moscow.

Pakistan seeks oil deal with Russia

Pakistan’s Economic Affairs Minister Sardar Ayaz Sadiq (left) shakes hands with Russia’s Energy Minister Nikolay Shulginov after the two signed the final protocol of the 8th Session of the Intergovernmental Commission meeting (IGC) of Pakistan-Russia on Trade, Economy, Science and Technical Cooperation, in Islamabad on January 20, 2023.

Credit: Twitter/ Economic Affairs Division, Government of Pakistan

Pakistan is close to a final agreement with Russia for the import of crude oil and petroleum products, with the first shipment expected to arrive in the country after a final deal is agreed in late March.

Russian Energy Minister Nikolay Shulginov was in Pakistan last week to discuss the deal. “We have already decided to draft an agreement to solve all the problems we have regarding transportation, insurance, payments and volumes. These issues are in the final stage of the agreement,” Shulginov said.

With crucial details yet to be ironed out, the deal, if it goes through, would be significant for Pakistan’s economy and its ties with the world.

It is the first solid start Pakistan and Russia have made in establishing bilateral cooperation in oil and gas trade. In the past, conversations about it did not go beyond declarations of interest.

Now, Pakistan not only wants to start imports in a few months, but also wants to comply 35 percent of its total crude oil requirement from Russia. If all goes to plan, the trade could further reshape the bilateral relationship, allowing both countries to structure their ties more effectively.

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The prospect of Russian oil and gas imports also means that Pakistan, which is already buying oil from Saudi Arabia and other Gulf states with deferred payment options, has another source to access oil at cut prices.

This is important as Pakistan is facing a default situation, with barely enough foreign reserves to cover three weeks of oil imports. Energy accounts for the bulk of Pakistan’s imports, and cheaper oil from Russia will help Pakistan contain a growing trade deficit and balance of payments crisis.

At this time, it is not clear which currency Pakistan and Russia will use to make the payment. However, Pakistan is expected to use the Chinese yuan to pay for Russian oil. According to the joint statement, once “consensus on the technical specification [is] achieved, oil and gas commercial transactions will be structured in a way that is mutually beneficial to both countries.” This could help alleviate some of the pressure Pakistan is facing on its foreign reserves.

The development is also a great diplomatic success for Pakistan. It seems that Pakistan has found a way to circumvent Western sanctions against Russia after the Russian invasion of Ukraine. If Pakistan had feared that the deal would provoke the United States and its allies, the country may not have reached this advanced stage of negotiations with Russia. This is particularly important as Pakistan is currently negotiating another review for the release of crucial funds from the International Monetary Fund (IMF).

The accelerated pace with which Pakistan and Russia are moving to close a deal indicates that the United States may have no objection to the two countries doing business. It is also possible that Pakistan has accepted the US in its decision to import Russian oil. So far, neither the United States nor Pakistan’s traditional energy providers in the Gulf have issued statements objecting to Islamabad’s ongoing negotiations with Moscow.

The United States appears to be willing to ignore the deal. Earlier this week, emphasizing the role of the United States in stabilizing Pakistan’s economy, State Department spokesman Ned Price said:: “This is a challenge to which we are tuned. I know that Pakistan has been working with the IMF and other international financial institutions. We want to see Pakistan in an economically sustainable position.”

Washington is reported to have Deeper engagement with the current Pakistani government. on financial matters. A delegation of senior officials from the US Treasury Department is expected to visit Pakistan soon to discuss different aspects of financial assistance for Pakistan. In addition, the US embassy in Islamabad plans to host a conference in Pakistan in March to discuss energy security issues.

Apparently things are working out for Pakistan. His attempt to cut a deal with Moscow is proceeding without much resistance from either side. Islamabad should now focus on completing all the technical details to ensure that the Russian supplies reach Pakistani ports as soon as possible.

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