India’s debt-ridden neighbour, Pakistan, taking India as an example is also looking towards Russia to import discounted crude oil. Potentially reducing its reliance on Middle Eastern oil producers, Pakistan has placed its first order of 100,000 barrels per day (bpd) of discounted Russian crude oil.
Pakistan on an average imports 500,000 bpd of oil. In 2022, 154,000 bpd of oil was imported with most of it coming from Saudi Arabia and the UAE. The introduction of Russian crude could have a significant impact on the supplies from Middle Eastern producers, which may not be welcomed and could lead to future issues.
It is to be noted, that prior to the Russia-Ukraine conflict, more than 60% of the Indian crude basket was made up of Middle Eastern crudes, with the remainder made up of North American crudes at around 14%, West African crudes at 12%, and Latin American at around 5%, with Russian grades accounting for only about 2%. However, since the war began the West African crude oil prices skyrocketed, and India made a strategic choice of prioritising the import of crude oil from Russia, making up for 25% of all oil imports.
Pakistan-Russia Crude Oil Deal
The deal for the crude oil supply was finalised between Pakistan and Russia when representatives from both countries met. At that time, the Petroleum Division aimed to secure the deal at a price close to $50 per barrel, lower than the price cap. Shipping crude oil from Russian ports was estimated to take around 30 days, with resulting transportation costs of $10-15 per barrel. The payment method for crude oil imports from Russia had not been disclosed, but options included Pakistan National Shipping Corporation ships or Russian tankers for transportation.
While Pakistan through this move is trying to cut its cost, but is it feasible for the nation?
Pakistan which until recently has been importing sweet and lighter oil from Middle East will have to face several technical challenges in introducing the discounted crude oil from Russia. The most significant issue amongst this is adapting refineries to process the heavy-grade sour Russian oil. Another challenge will be with the freight rates, which can be significantly high given the distance between Russia and Pakistan is much more than between Pakistan and the Middle East.
Pakistan will also have to look into important diplomatic considerations. Currently facing high debt distress Pakistan is trying to meet all the conditions to secure a bailout from the International Monetary Fund (IMF). Pakistan’s economy is expected to grow by only 0.5% this year, compared to 6% last year. It is facing multi-decade-level inflation, and its people have died in stampedes attempting to obtain free wheat/flour. By importing discounted Russian oil, Pakistan might delay or obstruct the ongoing negotiations with the IMF.
Pakistan might also be risking its long-term relations with Saudi Arabia and the UAE if they decide to import Russian oil. Pakistan enjoys many advantages regarding external financing from Saudi Arabia in the form of delayed oil payments, debt rollovers, and other assurances that endorse the nation’s case with International Financial Institutions (IFIs).
However, things might not be the same anymore, as Saudi Arabia has given a clear message of “no more easy money” and has refused to provide further interest-free loans or bailouts.
In conclusion, while the purchase of discounted Russian crude oil may be welcomed by the people of Pakistan if it translates to lower prices at the pump, several technical and non-technical challenges still need to be addressed. The most important challenge is for the country to navigate the complex geopolitical quandary it is currently in.