Pakistan will receive its first shipment of oil from Russia by the end of April, following an agreement to import one shipment as a test case to bridge a “trust deficit” between the two countries. The country’s second-largest crude oil supplier after Saudi Arabia is Russia, which has already offered to export 100,000 barrels of crude oil per day to Pakistan.
According to sources, Russia had expressed concerns about Pakistan’s readiness to finalise the oil deal, which prompted Moscow to request that Islamabad import “one oil cargo” as a test case. Pakistan has agreed to export blended oil because it lacks the technology to refine Russia’s heavy crude oil.
A cargo of crude oil was imported by Islamabad as a demonstration of Moscow’s confidence in the deal. In order to open the door for a larger agreement, Islamabad has agreed to import “one crude oil cargo” by the end of April this year.
Paying for Russian crude oil in the same currency could be difficult for Pakistan, which is experiencing a dollar shortage. To counteract this, Russia has agreed to accept payment in three different currencies: the Russian ruble, the Chinese yuan, and the UAE dirham in exchange for supplying Pakistan with crude oil.
A payment system for the import of oil in currencies other than dollars is currently being developed by the State Bank of Pakistan (SBP) and its Russian counterpart banks.
In order to import Russian oil into Pakistani refineries, a new Special Purpose Vehicle (SPV) company will be established by that country. The Russian side will also be dealt with by this state-run business regarding all issues relating to the import and payment of oil.
Russian oil pricing has been a contentious topic due to reports that the price of oil increased after Russia’s attack on Ukraine. Pakistan had originally hoped to reach an oil agreement with Moscow at a price ceiling set by the G-7, but Russian President Vladimir Putin had stated that his country would not do business with a nation that sought to import oil at a price ceiling. According to sources, the price of Russian crude has not yet been agreed upon by Pakistan and Russia.
Despite the uncertainty surrounding pricing, experts believe that Pakistan, which has had trouble opening LCs, will benefit greatly from the oil deal with Russia. Moscow is expected to offer Islamabad “good discounts,” but Russia has ruled out the possibility of a 30% discount on crude oil exports to Pakistan.
