Russia will send its first consignment of crude oil to cash-strapped Pakistan by next month after Islamabad agreed to Moscow’s demand to import just a single cargo to bridge the “trust deficit” between the two countries, a media report said on Sunday.
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.
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.
The first consignment from Moscow will arrive by the end of next month, paving way for a bigger deal in the future, the report said.
Since Pakistan lacked the technology to refine crude oil, Russia has agreed to export blended oil to the country, it said.
Following Saudi Arabia that exports around 100,000 barrels of oil per day, Russia will emerge as the second largest crude oil supplier to Pakistan if this deal materialises, it said.
Sources said that Pakistan and Russia had not finalised the price of the crude, even as Islamabad hoped to receive “good discounts” from Moscow, according to the Express Tribune report.
In December last year, Russia refused to provide Pakistan a 30 per cent discount on its crude oil after the Pakistani delegation asked for a reduction in price.
As Pakistan faces a severe paucity of the US dollars, it would be a challenge to pay for the Russian crude oil in the same currency.
Earlier, a foreign company offered a Pakistani refinery to import Russian crude oil but the Pakistani banks refused to make payments, the report said.
Russia has now agreed to receive payment in three currencies — Russian rubble, Chinese yen and UAE dirham against the supplies, it said.
Sources said that Pakistan had planned to set up a new Special Purpose Vehicle company that would be responsible for the import of Russian oil to the Pakistani refineries, the report said.
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 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 (IMF), according to the State Bank of Pakistan.
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 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.
Meanwhile, India’s crude oil imports from Russia soared to a record 1.6 million barrels per day in February, and is now higher than the combined imports from traditional suppliers Iraq and Saudi Arabia.
From a market share of less than 1 per cent in India’s import basket before the start of the Russia-Ukraine conflict, it currently stands at a 35 per cent share.