Daily Times

On Sunday, the first shipment of discounted Russian crude oil secured under a new agreement between Islamabad and Moscow landed in Karachi, beginning a new chapter in the two nations’ cooperative commercial relations. This first Russian crude oil cargo was ordered by Pakistan at a discounted price of up to $18 a barrel. According to the sources, Islamabad adopted the Platts crude oil rates, which entailed Platts minus a $16-18 per barrel discount.

In accordance with this agreement, Russia delivered the first crude oil vessel, which had just arrived at the port of Omani carrying 100,000 metric tonnes of crude. The government decided that smaller ships would be used to bring crude oil to Pakistan because the country’s ports are unable to handle large ships carrying liquid cargo weighing more than 50,000 tonnes. In the next few days, the second cargo of Russian crude oil from an Omani port to Pakistan is anticipated to be finished. The Russian crude will first be refined by Pakistan Refinery Limited (PRL) in a trial run. Following refinement, PRL will provide the government with a test report on the quality, yields, and marketability of the Russian crude. The government will be assisted by the PRL test report in evaluating refinery profits and transportation expenses. This crude oil agreement is seen with a complete celebration inside Pakistan as the country has badly been going through economic predicaments. But this is too early to celebrate the joy as there are many challenges to face with.

Pakistan’s civilian governments have made an effort to cut back on their reliance on the West and strengthen their ties with Russia.

The first challenge is, this deal may provoke America. America and Russia have been in historical hostilities, and the current Russia-Ukraine war has already added fuel to fire in their fragile relationship. Pakistan can not afford to stake its relationship with America as the IMF has already denied to bail out in instalments. So in this gloomy scenario Pakistan should be careful in dealing with Russia. The second challenge is that, in contrast to Saudi Arabia, Russia will only supply crude oil to Pakistan. This is problematic. Each additional barrel of refinery costs roughly $4. In addition, Pakistan’s refineries are not used to processing the hard Russian crude oil for refinement The third challenge is the higher shipping expenses associated with importing Russian oil. Currently, Pakistan imports oil from the Gulf through Dubai’s port, which is about 1,300 kilometres away from Karachi. The closest Russian seaport is eight thousand km away. Costs of transportation are difficult to quantify, but the oil specialists I spoke with asserted that they will be at least three times higher for Russian oil to Pakistan than for Arabian oil. Again, this expense will reduce Pakistan’s anticipated savings from oil imports per barrel.

The situation of the economy is brought up once more as the fourth challenge. In order to pay Russia for its oil, Pakistan does not have the necessary foreign exchange reserves. Given that Moscow only wants payments in US dollars, Islamabad must be able to breathe a sigh of relief. Pakistan’s dollar reserves are only $4.46 billion. But Pakistan also lacks sufficient reserves of the three alternative currencies provided by Russia: the Russian rouble, the Chinese yuan, and the UAE dirham. The only realistic option is for Russia to supply oil to Pakistan on credit, with repayment anticipated to occur most likely in the fourth quarter of this year. This is hardly a long-term fix. Pakistan is unable to obtain international financing and is struggling to pay off its current debts.

Despite these hardships, Pakistan is in dire need of economic rehabilitation by any means. This Russian crude oil deal may be a first step towards self-sustainability and survival.

Compared to Arabian crude, which generates 25% furnace and 45% diesel, Russian crude produces 50% furnace oil and 32% diesel. The context of Pakistan’s oil consumption trend makes this detail important. Diesel accounts for 39% of the total, although only 15% of furnace oil is used to generate electricity. Due to the Russian oil imports, Pakistan would ultimately have more furnace oil than necessary, which will negate the cost-saving advantages of this agreement.

Just to appease America Pakistan can no longer isolate itself from world politics. Pakistan is fully aware that Western powers prefer Indian hegemony as a model of stability rather than a balance of power and resolution of the complex nature of the India-Pakistan conflict. But there is good news for Pakistan China and Russia have very broad strategic interests in South Asia, which are still principally with India but are no longer exclusively with India, as evidenced by their increasingly impartial stance on bilateral disputes involving that region. Over the past ten years, Pakistan and Russia have made an effort to develop a trusting relationship and a long-term strategic partnership. However, historical occurrences and developments such as Pakistan’s close ties to the US, the Soviet intervention in Afghanistan, the Soviet doctrine of Indo-centrality, and domestic unrest in Pakistan have had a significant impact on the relationship. Despite these difficulties, Pakistan’s civilian governments have made an effort to cut back on their reliance on the West and strengthen their ties with Russia. It will, however, take some time for the two countries to establish a friendship that will persist despite outside influences. Worth to add that this current crude oil deal would definitely pay the way for the bilateral benefit for both sides, especially for Pakistan.

The writer is a freelance columnist.