Cash-strapped Pakistan is making concerted efforts to procure Russian crude oil at USD 50 per barrel, at least USD 10 per barrel less than the price cap imposed by the G7 countries due to Moscow’s invasion of Ukraine, media reports said on Sunday. Crude oil is currently being sold globally at USD 82.78 per barrel.
Pakistan, which is currently grappling with high external debt and a weak local currency, is desperate to purchase cheap crude at discounted rates from Russia.
Moscow will respond to Pakistan’s request for discounted crude oil only after it completes formalities such as mode of payment, shipping cost with premium and insurance, according to The News.
The first consignment of crude oil from Moscow is scheduled to arrive in Pakistan by the end of next month, paving the way for a bigger deal in the future, the paper said. The shipping of crude oil from Russian ports will take 30 days, which would mean an increase of USD 10-15 per barrel due to the transportation costs, it added.
Russia was initially concerned “over the seriousness of Pakistan to mature the oil deal,” but in a recent meeting between officials from the two countries, Moscow asked Islamabad to import “one oil cargo” as a test case to bridge the trust deficit, according to The Express Tribune newspaper.
Pakistan will first import one Russian crude oil ship to test landed cost, The News reported. Since Pakistan is facing a US dollar liquidity crunch, it would pay Russia in the currencies of friendly countries that include China, Saudi Arabia, and UAE, it said.
In December last year, Russia refused to provide Pakistan with a 30 per cent discount on its crude oil after the Pakistani delegation asked for a reduction in price.
Energy accounts for the biggest share of Pakistan’s imports, and cheaper oil from Russia will help Pakistan in containing the ballooning trade deficit and balance-of-payments crisis. As Pakistan continues to suffer from a severe shortage of foreign exchange reserves, any short or long-term deals with Russia to take crude and oil products at low prices would help reduce the nation’s financial burden.
Pakistan’s foreign exchange reserves, which fell to a critically low level of USD 2.9 billion a few weeks ago, have now risen closer to USD 4 billion, even as the country eagerly waits for the USD 1.1 billion tranches of funding from the International Monetary Fund, according to the State Bank of Pakistan estimates.
The reserves at the start of the fiscal year on July 1, 2022 were around USD 10.309 billion, registering a drop of USD 7 billion in just seven months. The cataclysmic floods last year inundated a third of the country, displaced more than 33 million and caused economic damages to the tune of USD 12.5 billion to Pakistan’s already teetering economy.