Pakistan has ordered discounted crude oil from Russia, marking its first purchase under a deal between the two countries. The move will give Russia a new outlet as it redirects oil from western markets due to the Ukraine conflict. Pakistan’s purchase will help to alleviate its acute balance of payments crisis, which risks defaulting on its debt obligations. Energy imports make up the majority of Pakistan’s external payments. The country will buy only crude, not refined fuels, and imports are expected to reach 100,000 barrels per day if the first transaction goes smoothly.
The deal was difficult for Pakistan to accept, given its long-standing status as a Western ally and arch-rival of neighbouring India, which has historically been closer to Moscow. However, its financing needs are great. Russia plans to supply Urals crude to Pakistan, and the impact of the Russian imports on local pricing will be apparent once the crude has been refined and is ready to sell. The US dollar has historically been the currency of oil trade, but the Ukraine war has eroded its dominance as Russia avoids receiving a currency it has been largely blocked from using by Western sanctions.
Pakistan’s Refinery Limited (PRL) will initially refine the Russian crude in a trial run, followed by Pak-Arab Refinery Limited (PARCO) and other refineries. As part of sanctions on Moscow, Western nations have imposed a $60 a barrel price cap on purchases of Russian oil to try to limit Russia’s revenues for fighting in Ukraine. India and China, however, have paid prices above the cap. Russian Energy Minister Nikolay Shulginov led a delegation to Islamabad in January, after which he said oil exports to Pakistan could begin after March.
