All Pakistani banks have reportedly refused to open letters of credit (LCs) for Russian-origin crude oil. The decision comes due to economic sanctions on Russia by the United States, the United Kingdom, and the European Union for its military actions in Ukraine.
According to details reported by the media, commercial banks have stated that payment in US dollars is not possible against the import of Russian crude oil. On the other hand, import of Russian may be possible if the government comes into a G2G agreement for transaction mode based on the rouble. Moreover, banks need assurance that the move will not result in any sanctions on Pakistan.
Reacting to the news, former Energy Minister Hammad Azhar claimed that these are all excuses for not importing Russian oil. Pertinent to mention, purchasing oil from Russia has been a point of conflict between the incumbent government and its predecessor.
“There are no sanctions on Russia for importing oil. If the government is serious, order its own National Bank of Pakistan to open L/C,” Hammad Azhar tweeted.
یہ سب نورا کشتی چل رہی ہے روسی تیل نہ منگوانے کے لئے۔ روس سے تیل منگوانے پر کوئی sanctions نہیں۔ حکومت اگر سنجیدہ ہو تو اپنے ہی نیشنل بینک آف پاکستان کو حکم دے L/C کھولنے کے لئے۔ https://t.co/uoIITNwfti
— Hammad Azhar (@Hammad_Azhar) July 2, 2022
Pakistan is currently facing an energy crisis and mulling purchasing cheaper oil from Russia. Pakistan’s monthly fuel oil imports are set to hit a four-year high. The country’s fuel oil imports could climb to about 700,000 tonnes. Furthermore, with the dire economic conditions, Pakistan cannot afford a high import bill.
On the other hand, importing Russian oil, however cheaper, will be quite challenging for Pakistan. All the refineries had the technical capacity extent of 30 to 35 percent to process Russian crude grades with minor adjustments. None of the Pakistani refineries can handle 100pc Russian crude of any grade.
Most importantly, importing Russian oil will lead to high transportation costs for Pakistan and the sea voyage from the Black Sea would be around 16-26 days compared to 4-5 days from the Middle East. Moreover, the route is likely to pass through war zones owing to which risk factors will increase manifold.