The “conceptual agreements” Pakistan and Russia signed on Friday regarding the delivery of Russian crude oil represent the first concrete step toward bilateral cooperation in the oil trade. If all goes as planned and the major concerns of insurance, transportation, volume, and payment system are resolved, a definitive deal is anticipated to be reached by the end of March, offering Pakistan the chance to purchase Russian oil at a reduced price.
Although the matter is still being worked out, the two parties have in general agreed that the payment can be done in “currency of friendly countries. “Once the supplies start coming in, Pakistan may use the Chinese yuan to pay for its purchases due to a lack of dollars. While Russian officials claim that problems are “in the last stage of agreement,” Pakistani officials assert that all issues were resolved during Russian Energy Minister Nikolay Shulginov’s visit for an international commission meeting.
The oil and gas trade transactions will be designed so that both countries gain after “agreement on the technical specification [is] obtained,” according to a joint statement.
The majority of Pakistan’s imports are made up of energy, and the cheaper oil from Russia will assist to considerably reduce the growing trade deficit at the root of our balance-of-payments crisis, which has seen foreign currency inventories drop from nearly $17 billion to $4.3 billion in the last year. In the event that the agreement is finalised and oil shipments start, Islamabad intends to purchase at least 35 percent of its 70 million barrel annual crude oil imports from Russia.
Pakistan could save between $500 million and $1 billion annually on its total oil imports by taking into account the Western cap of $60 per barrel on Russian crude, imposed to deplete Moscow’s oil cash flow due to the Ukraine war.
This savings would depend on the price discount offered on top of the Western cap, freight and other costs, and import volumes. The discounted Russian oil, which accounted for 15% of India’s total oil imports last year, has been fully utilised by the country.
That would be a huge relief for a nation that was about to go into default.
Although it would seem improbable, some industry insiders believe that if Moscow refuses to supply oil to Pakistan at or below the reduced pricing, the EU’s intention to forbid European companies from insuring, shipping, or trading Russian crude elsewhere in the world might cause major problems. But that will happen later. For the time being, the administration should move swiftly to implement its intentions to increase oil and gas trading with Russia. Pakistan should be able to circumvent Western sanctions against Moscow if the necessity arises if India can.
