Pakistan is seeking an oil deal with Russia – the diplomat

pulse | Economie | South Asia

Despite Western sanctions against Russia for its invasion of Ukraine, the United States has not publicly objected to Pakistan buying oil from Moscow.

Pakistan’s Economic Affairs Minister Sardar Ayaz Sadiq (left) shakes hands with Russian Energy Minister Nikolai Shulginov after signing the final protocol of the eighth session of the Pakistan-Russia Intergovernmental Commission on Trade, Economy and Science meeting. and Technical Cooperation, in Islamabad on January 20, 2023.

credit: Twitter/Department of Economic Affairs, Government of Pakistan

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

Russian Energy Minister Nikolai Shulginov visited Pakistan last week to discuss the deal. We have already decided to draft an agreement to sort out all the issues we have regarding transportation, insurance, payments and quantities. Shulginov said that these issues are in the final stage of agreement.

Admittedly, crucial details still need to be ironed out, the deal, if finalized, will be significant for Pakistan’s economy and its relations with the world.

It is the first strong start by Pakistan and Russia towards establishing bilateral cooperation in oil and gas trade. In the past, conversations in this regard did not go beyond statements of interest.

Now, Pakistan not only wants to start imports in a few months, but also wants to meet 35 percent of its total crude oil needs from Russia. If all goes as planned, trade could reshape bilateral relations to a greater extent, allowing both countries to structure their relations more effectively.

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The prospect of oil and gas imports from Russia also means that Pakistan, which already buys oil from Saudi Arabia and other Gulf states on deferred payment options, has another source of access to oil at discount prices.

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

At this point, it is not clear which currency Pakistan and Russia will use for the payment. However, Pakistan is expected to use the Chinese yuan to pay for Russian oil. According to the joint statement, once “the technical specifications have been agreed upon [is] In this regard, oil and gas trade transactions will be structured in a way that is mutually beneficial to both countries.” This may help relieve some of the pressure that Pakistan is facing on its foreign exchange reserves.

The development is also a major diplomatic success for Pakistan. It appears that Pakistan has found a way to circumvent Western sanctions against Russia in the aftermath of the Russian invasion of Ukraine. Had Pakistan feared that the deal would provoke the United States and its allies, the country might not have reached this advanced stage of negotiations with Russia. This is particularly important because Pakistan is currently negotiating another review of the release of critical funds from the International Monetary Fund (IMF).

The rapid pace with which Pakistan and Russia are moving to close a deal suggests that the United States may not object to the two countries doing business. It is also possible that Pakistan may have taken on the US in its decision to import Russian oil. So far, neither the United States nor Pakistan, traditional energy suppliers in the Gulf, have issued statements objecting to Islamabad’s ongoing negotiations with Moscow.

It seems that the United States is ready to ignore the deal. Earlier this week, State Department spokesperson Ned Price emphasized the United States’ role in stabilizing Pakistan’s economy, saying, “This is a challenge that we understand. I know Pakistan is working with the International Monetary Fund and other international financial institutions. We want to see Pakistan in a sustainable position.” economically.”

Washington has reportedly deepened its engagement with the current Pakistani government on financial matters. A delegation of senior US Treasury officials is expected to visit Pakistan soon to discuss various aspects of financial assistance to Pakistan. In addition, the US Embassy in Islamabad plans to organize a conference in March in Pakistan to discuss energy security issues.

Apparently, things are going well for Pakistan. Its attempt to strike a deal with Moscow is moving forward without much resistance from anywhere. Islamabad should now focus on completing all the technical details to ensure that Russian supplies reach Pakistan’s ports as soon as possible.

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