In a significant development, Pakistan has paid for a shipment of discounted Russian crude oil in Chinese currency, according to Minister of State for Petroleum, Musadik Malik. The country faced a shortage of dollars and a dispute between the United States and Russia over the Ukraine issue, which led to the decision to open a Letter of Credit (LCs) in the Bank of China for payment.
The arrival of the first cargo of discounted Russian crude oil, as part of a new deal between Islamabad and Moscow, was celebrated by Prime Minister Shehbaz Sharif. He expressed satisfaction that the promise made to the nation had been fulfilled and considered it the beginning of a new relationship between Pakistan and Russia.
Sources indicate that this shipment of Russian oil will not be part of the regular oil pricing mechanism in the country. Instead, the Pakistan Refinery Limited (PRL) will assume the benefits or losses associated with the Russian oil. The shipment will serve as a test case to assess the quality of the crude oil and the ratio of refined products, with a report being prepared for future decisions on long-term commercial oil deals.
Pakistan procured the first Russian crude oil cargo at a discounted rate of up to $18 per barrel. The pricing followed Platts crude oil prices, with a discount of $16-18 per barrel. However, concerns have been raised regarding the quality of the Russian oil, which is said to be inferior, as well as the high freight costs compared to Arabian light oil currently processed by Pakistani refineries.
The procurement of crude oil has been a politically sensitive issue in Pakistan, particularly since former Prime Minister Imran Khan’s visit to Moscow shortly before Russia’s conflict with Ukraine. Khan claimed that his Moscow visit was one of the reasons for his subsequent ouster.
Currently, Pakistan relies on traditional Gulf and Arab suppliers, mainly Saudi Arabia and the United Arab Emirates, to meet 80% of its oil requirements, amounting to approximately 154,000 barrels per day.
The successful payment in Chinese currency for the Russian crude shipment marks a significant step in diversifying Pakistan’s oil sources and strengthening ties with Russia. It also highlights the country’s efforts to navigate geopolitical challenges and ensure a stable energy supply. The outcome of the test case will provide valuable insights for future decisions regarding oil imports, contributing to Pakistan’s energy security and economic growth.