Pakistan strikes deal with Russia

Pakistan has placed its first order for discounted Russian crude oil under a deal struck between Islamabad and Moscow, says the country’s petroleum minister.

One cargo is to dock at the port of Karachi in May.

Pakistan’s purchase gives Russia a new outlet, adding to Moscow’s rising sales to India and China as it redirects oil from Western markets because of the Ukraine sanctions.

Pakistan is a long-standing Western ally and arch-rival of neighbouring India, which historically is closer to Moscow. Analysts say the crude deal would have been difficult for Pakistan to accept, but its financing needs are great.

Discounted crude offers a respite as Pakistan faces an acute balance of payments crisis, risking a default on its debt obligations. The foreign exchange reserves held by the central bank are scarcely enough to cover four weeks of controlled imports. Energy imports make up the bulk of the country’s external payments.

Under the deal, Pakistan will buy only crude, not refined fuels, minister Musadik Malik said. Imports are expected to reach 100,000 barrels per day if the first transaction goes through smoothly, he said.

“Our orders are in, we have placed that already,” he said, confirming information from sources that the country would not buy refined products.

A source in Moscow who is familiar with the negotiations said the final deal was reached in recent days. The Russian government did not respond to a request for comment.

Russian oil companies had discussed the possible supply of oil to Pakistan over recent months, said two trading sources familiar with the talks, who declined to disclose the names of possible suppliers. One source, speaking on condition of anonymity, said Russia planned to supply Urals crude to Pakistan. Islamabad imported 154,000 barrels per day in 2022, about steady with the previous year, data from analytics firm Kpler shows.

The crude was predominantly supplied by the world’s top exporter Saudi Arabia followed by the United Arab Emirates. The 100,000 barrels per day from Russia in theory greatly reduces Pakistan ’ s need for Middle Eastern fuel.

Asked about the effect of the Russian imports on local pricing, Malik said that would be apparent once the crude was refined and ready to sell.

The US dollar has historically been the currency of oil trade, but the Ukraine war eroded its dominance as Russia avoids receiving a currency it has been largely blocked from using by Western sanctions. Pakistan’s economic crisis means it is desperately short of hard currency.

Malik declined to say whether China’s yuan and the UAE’s dirham would be used for transactions. He also did not comment on the rate of imports. “I will not disclose anything about the commercial side of the deal,” he said.

Pakistan’s Refinery Limited will initially refine the Russian crude in a trial run, followed by Pak-Arab Refinery Limited and other refineries, said Malik.

In terms of the sanctions against Moscow, Western nations have imposed a $60 a barrel price cap on purchases of Russian oil to try to limit Russia’s revenue for invading Ukraine.

India and China, however, have paid prices above the cap, according to traders and Reuters calculations.

Russian energy minister Nikolay Shulginov led a delegation to Islamabad in January, after which he said oil exports to Pakistan could begin after March. Malik in turn took a delegation to Moscow to negotiate the deal late last year.

Pakistan and the IMF have been locked in negotiations since early February for the release of a $1.1bn tranche of a $6.5bn bailout agreed in 2019.