Pakistan's Game-Changer: Switching to Chinese Currency for Russian Crude Imports

Pakistan Shifts to Chinese Currency for Russian Crude Imports, Diversifying Export Payments

 Pakistan made a significant shift in its export payments policy by conducting its first government-to-government import of Russian crude oil in Chinese currency, according to State Minister for Petroleum Musadik Malik. The initial shipment of discounted Russian crude oil arrived in Karachi and is currently being offloaded at the port. While specific commercial details, such as pricing and discounts, were not disclosed, Malik assured that the refining of this crude would not result in losses and expressed confidence in its commercial viability.

The decision to explore discounted Russian oil purchases was announced by Finance Minister Ishaq Dar in the previous year, citing India's similar imports from Moscow and Pakistan's right to consider such possibilities. Musadik Malik then visited Moscow for talks on oil and gas supplies, leading to the government's decision to procure discounted crude oil, petrol, and diesel from Russia. In January 2023, a Russian delegation arrived in Islamabad to address technical issues and finalize the deal, to sign an agreement by late March.

Musadik Malik previously stated that Pakistan had placed its first order for discounted Russian crude oil, with expected imports reaching 100,000 barrels per day (bpd) if the initial transaction proceeded smoothly. The Russian crude would initially be refined by Pakistan's Refinery Limited (PRL) in a trial run, followed by Pak-Arab Refinery Limited (Parco) and other refineries.

The move to purchase discounted Russian crude oil offers respite to Pakistan, which is facing a severe balance-of-payments crisis and the risk of defaulting on its debt obligations. Energy imports account for a marked portion of the country's external payments. Currently, the majority of Pakistan's oil requirements are completed by traditional Gulf and Arab suppliers, primarily Saudi Arabia and the UAE. The potential 100,000 bpd from Russia could significantly reduce Pakistan's dependence on Middle Eastern fuel.

Analysts view the crude deal as challenging for Pakistan, considering its historical alliance with the West and rivalry with neighboring India, which has closer ties to Moscow. However, given Pakistan's substantial financing needs, the discounted crude offers a viable solution. Furthermore, the deal provides Russia with a new market outlet, expanding its sales to India and China as it redirects oil away from Western markets due to the ongoing Ukraine conflict.