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Friday, July 19, 2024

Pakistan looking towards Russia for a long-term oil deal

Pakistan's energy landscape is undergoing a significant transformation, with the nation looking towards Russia for a long-term oil deal.

Pakistan’s energy landscape is undergoing a significant transformation, with the nation looking towards Russia for a long-term oil deal. As the world grapples with fluctuating oil prices and geopolitical tensions, Pakistan is set to enter negotiations with Russia, aiming to secure a sustainable source of crude oil while adhering to a $60 per barrel price cap.

Promising Partnership

Pakistan’s interest in Russian oil is not a recent development. In a bid to diversify its energy sources, Pakistan had previously shipped a trial cargo of 100,000 metric tons of Russian crude oil. This initial venture proved to be cost-effective, with Pakistan’s Refinery Limited (PRL) benefiting from a $7 per barrel reduction in costs. Encouraged by these results, Pakistan is now seeking a long-term commitment from Russia.

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Price Negotiations and Geopolitical Factors

Negotiating the price of Russian oil has been a central issue in these discussions. Russia’s initial willingness to provide an $8 per barrel discount faced resistance from Pakistan, which has insisted on a $60 per barrel price cap. This price cap aligns with the restrictions placed on Russian oil by G7 countries and the European Union (EU), aimed at curbing Russia’s financial capacity to wage war against Ukraine.

Global Dynamics

The international community, led by the United States and its allies, has been closely monitoring these negotiations. Concerns about Russia channeling its oil revenue into the Ukraine conflict prompted G7 countries and the EU to impose a $60 per barrel price cap on Russian oil. The US, while supporting Pakistan’s move to import Russian oil, has urged compliance with this cap to maintain global oil supply stability.

Special Purpose Vehicle (SPV)

Although Pakistan and Russia initially agreed to set up a Special Purpose Vehicle (SPV) for oil trade, progress has been sluggish, leading to delays in finalizing the long-term deal. Russia has expressed doubts about Pakistan’s commitment to the agreement, stemming from the lack of due diligence by the previous government.

Balancing the Crude Oil Blend

One significant aspect of Pakistan’s oil import strategy is the blending of Russian crude with Arabian oil. Russian oil contains a higher percentage of furnace oil, which necessitates mixing with Arabian crude to meet market demands. While this blending has worked thus far, it underscores the importance of striking a favorable deal with Russia to maintain a stable supply.

Diplomatic Implications

For Pakistan, importing Russian oil signifies a strategic diplomatic move. Historically reliant on Middle Eastern oil sources, Pakistan’s shift towards Russian oil opens up new avenues for energy importation, enhancing its diplomatic relations with Moscow. This diversification in energy sources can contribute to Pakistan’s energy security.

Payment in Rubles

The issue of payment has also played a pivotal role in these negotiations. Amid a shortage of US dollars and tensions between the US and Russia, Pakistan and Russia have agreed to conduct transactions in Rubles. Pakistan has taken steps to facilitate these payments by opening letter of credits (LCs) in the Bank of China, ensuring a smooth flow of trade.

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Pakistan’s pursuit of a long-term oil deal with Russia at a $60 per barrel price cap represents a strategic move to secure a stable and affordable source of energy. While negotiations have faced challenges, this partnership has the potential to reshape Pakistan’s energy landscape and strengthen its diplomatic ties with Russia. As the world continues to grapple with energy security and geopolitical tensions, Pakistan’s endeavors in this regard stand as a testament to its commitment to ensuring a sustainable energy future.