Pakistan is all set to purchase discounted crude oil from Russia, as it makes its first order next month. The government explored the possibility of buying oil from Russia last year, and after several negotiations and technical discussions, the agreement was signed in late March this year.
Pakistan’s First Order of Russian Crude Oil
According to reports, Pakistan will place its first order for Russian crude oil next month. It is expected to take about four weeks for the commodity to reach Pakistan via sea. This agreement will prove to be a significant step towards enhancing Pakistan’s energy security and stabilizing the country’s struggling economy.
Technical Details of the Deal
Pakistani Minister of State for Petroleum, Musadik Malik, flew to Moscow for talks on issues such as insurance, transportation, and payment mechanisms. A Russian delegation arrived in Islamabad in January 2023 for technical discussions on finalising the deal. Both sides addressed key issues the trade transport mechanism would be structured in a way that benefits both countries.
Discounted Oil Prices for Pakistan
Russia has assured Pakistan that it will receive a discount on importing crude oil equal to that given to other neighboring countries. This cost advantage signifies a substantial blow for OPEC countries which may face competition from Russia in the region. This beneficial trade deal may lead other gas-producing companies like Iran and Saudi Arabia also to offer their products at reduced rates to Pakistan.
Poor vs Rich Tariffs
Pakistan is an economically divided country with about 60% of its population labeled poor. Subsidies are provided based on gas usage, where tariffs have been reduced or remain constant for those categorized poor compared to rich sections of society. These measures ensure gas subsidies reach those who need them most.
Challenges Faced by Islamabad
Pakistan faces many hurdles to maintain uninterrupted gas and petroleum supplies. The country is not an oil producing state and imports crude oil from the international market. Due to fear of sanctions, Pakistan is not considering importing oil from Iran. As for Moscow, it expressed doubt over Pakistan’s intentions regarding its initiative to import crude oil from Russia, urging Islamabad to import one cargo of oil first to indicate its seriousness. Moscow asked China to persuade Islamabad against joining the West in supporting Ukraine. Meanwhile, there are complications in finalizing crude oil pricing with Russia.
Roadblocks Faced by Pakistan
One of the most critical issues in crude oil pricing negotiations with Russia is the G7 Oil pricing cap mechanism. Pakistani refineries are already facing problems using furnace oil after the country’s power plants shifted towards LNG fuel which produces more diesel than furnace oil. In contrast, Arabian crude oil produces more diesel and less furnace oil compared to Russian crude, which may erode the incentives offered by Russia on crude oil trade.
Conclusion
The agreement between Pakistan and Russia on purchasing discounted crude oil is undoubtedly a significant step towards strengthening their ties in energy cooperation. This joint initiative will bring stability to Pakistan’s energy sector and contribute towards economic development. However, both parties need to resolve outstanding issues while facilitating smooth trade transport mechanisms, taking into account technical parameters that benefit both.
In conclusion, this landmark deal shall provide Pakistan with economic relief while fulfilling its energy consumption demands at reduced costs.
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