The Biden administration has indicated that it will not oppose Pakistan’s recent purchase of discounted Russian crude oil. The US State Department has stated that each country has the right to make its own sovereign decisions regarding its energy supply and that the US has not tried to keep Russian energy off the market.
However, the department’s principal deputy spokesperson cautioned that steps need to be taken to ensure that Russian energy markets are not used to fund President Putin’s war machine. Pakistan’s purchase gives Russia a new outlet for its oil, which it is redirecting from Western markets due to restrictions. The US also assured Islamabad that any assets or weaponry left in Afghanistan were no longer usable.
Pakistan has recently placed an order for discounted Russian crude oil, marking a new outlet for Moscow’s growing sales to India and China as it redirects oil from Western markets due to the Ukraine conflict. The deal is seen as difficult for Pakistan to accept as a long-standing Western ally and arch-rival of neighboring India, which historically is closer to Moscow, but its financing needs are great due to an acute balance of payments crisis. The country will only be buying crude, not refined fuels, with imports expected to reach 100,000 barrels per day if the first transaction goes smoothly. Energy imports make up the majority of Pakistan’s external payments.
Major Russian oil companies have discussed the possible supply of oil to Pakistan over recent months, two trading sources familiar with the talks said but declined to disclose the names of possible suppliers. One of the sources, speaking on condition of anonymity, said Russia plans to supply Urals crude to Pakistan.
Islamabad imported 154,000 bpd of oil in 2022, around steady with the previous year, data from analytics firm Kpler showed.
The crude was predominantly supplied by the world’s top exporter Saudi Arabia followed by the United Arab Emirates. The 100,000 bpd from Russia in theory greatly reduces Pakistan’s need for Middle Eastern fuel.
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Asked about the impact of the Russian imports on local pricing, Malik said that would be apparent once the crude had been refined and was ready to sell.
The U.S. dollar historically has 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 economic crisis meanwhile means it is desperately short of hard currency.
Malik declined to say whether Chinese yuan and the UAE 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 (PRL) (PKRF.PSX) will initially refine the Russian crude in a trial run, followed by Pak-Arab Refinery Limited (PARCO) and other refineries, Malik said.
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, 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 International Monetary Fund (IMF) have been locked in negotiations since early February for the release of a$1.1 billion tranche of a $6.5 billion bailout agreed in 2019.