The Russia-Ukraine War is taking its toll on the international crude market risking the economic growth of third-world countries including Pakistan. Russia is one of the world’s most significant oil exporting nations representing up to 15 percent of the global production. Sanctions imposed on Russia by the US and its allies in Europe and Asia did not target the Country’s energy exports initially, but removed Russia from SWIFT global interbank payment systems, and restricted its access to foreign exchange reserves estimated at USD $ 630 billion.
The fear of removal of Russian banks from SWIFT induced self-sanctioning by international financial institutions limiting payments including those of energy exports. The abrupt pause in the supply of oil raised the price of crude to $ 139 per barrel in March 2022. However, the sanctions regime had little impact on the Russian economy as it successfully rerouted its oil trade eastwards. China and India jumped on the opportunity to buy oil at discounted rates restoring Russian energy exports to pre-war levels as soon as April 2022. Can third-world countries including Pakistan, mainly dependent on western financial institutions and economies, take the liberty to buy discounted oil from Russia?
Pakistan’s dependence on LNG
Pakistan’s economy heavily depends on imported oil and Liquefied Natural Gas (LNG). Up to 48 percent of the country’s energy mix depends on imported fuels, along with the ever-rising domestic use of gasoline, diesel, and natural gas. Any international development resulting in the halt of oil supply, or causing a surge in its price directly puts Pakistan’s national security in jeopardy. In November 2022, the Government of Pakistan green signaled a deal worth USD $ 112 million to import 300,000 tonnes of wheat from Russia to meet its domestic shortfall.
Prime Minister Shehbaz Sharif and his predecessor Imran Khan, both vouched to expand bilateral cooperation with Russia as Pakistan sought regional realignments and lesser reliance on the west. Like India and China, Pakistan has also indicated to catch hold of discounted Ural Crude as the current government faces strong public outrage over rising fuel prices. However, it will be interesting to see if Pakistan, like India and China, is able to freely conclude an oil purchase deal with Russia without any backlash from the west.
Worldwide demand for oil grew due to a significant decrease in prices between 2010 and 2015. Crude became an essential component of global economic growth and Pakistan was no exception. To control the disastrous shortfall of gas and electricity after 2008, Pakistan relied on oil as a main source of energy. As a result of such ad hoc policies, negligible foresight, and utter disregard for future oil prices and shocks, the Country was caught off guard when fuel supply chains were disrupted and prices of oil soared at the start of the Russia-Ukraine War.
The uncontrolled rise in import bills and floods further squeezed the economy, causing unprecedented inflation and depreciation of the rupee. The Government had to take drastic measures, such as a stern ban on imports, in order to prevent certain bankruptcy and a widening current account deficit. Desperate measures in desperate times left adverse impacts on industrial output and overall economic growth striking inflation to an unparalleled 26.6 percent in November 2022.
Despite past differences, Pakistan and Russia have found new avenues of cooperation in recent years. Trade between the two countries has increased with continuity in the last 25 years. In 2020, Pakistan’s exports to Russia were estimated at USD $ 279 million, whereas, Russia’s exports to Pakistan stood at USD $ 699 million. Pakistan’s natural tilt towards Russian weapons and military equipment came with the deepening of US-India ties.
The exchange of high-level visits after 2010 resulted in the lifting of an arms embargo on Pakistan by Moscow in 2015. Since then, Pakistan has purchased prominent Mi-35 Hind-E Helicopters from Russia, and both countries have also conducted various joint military drills. The geopolitical convergence between Islamabad and Moscow forms a great opportunity for Pakistan to further deepen bilateral ties and to secure better deals to fulfill its energy requirements.
On the diplomatic front, Pakistan is left with few but complicated choices
Like India, Pakistan should also prioritize its national security while opting for any foreign policy options. As the conflict is intensifying, more pressure is being exerted by the west on third-world countries. So far, Pakistan has maintained its neutrality as it abstained from voting against Russia at the UNGA. Like wheat, buying Russian oil at USD $ 30 per barrel lesser than the global price is the need of the hour. However, such a move should not come at the cost of Pakistan’s partnerships in the west. Where conflicts bring adverse implications for the international community at large and the third world, in particular, they also bring certain opportunities. Islamabad can explore such policy options that do not place it at the receiving end of the Russia-Ukraine Conflict.
At the domestic level, Pakistan needs to adopt and implement policies and projects that reduce its economic vulnerability. The reliance of core sectors of the economy on imported oil places Pakistan in a perilous position during turbulent times such as these. In order to have cheaper and more sustainable energy, the timely implementation of the Integrated Generation Capacity Expansion Plan (IGCEP) – a plan to reduce oil-intensive methods of power generation in Pakistan’s energy mix, is the need of the hour.
To reduce the domestic use of gasoline and diesel, the Government needs to promote ‘green initiatives’ robustly. Local manufacturing and imports of hybrid cars need to be encouraged, and effective public-private partnerships are required to upgrade the outdated public transport infrastructures. The national security of the country cannot be left at the mercy of international actors. It is about time that we do away with ‘adhocism’, and draft policies with the coming generations in sight.
The writer is a Research Associate at the Centre for Law and Security (CLAS). The views expressed in this article are the author’s own and do not necessarily reflect the editorial policy of Global Village Space.