Pakistan paid for its first government-to-government import of discounted Russian crude oil in Chinese yuan, signaling a dramatic shift in its US dollar-dominated export payments strategy. Why is Pakistan paying Russia in Chinese currency?
As Pakistan faces an economic crisis with an acute balance of payments problem and the prospect of default on its external debt, cheap Russian crude oil provides a reprieve because the central bank’s foreign exchange reserves are just enough to finance a month of restricted imports.
According to an agreement reached earlier this year between Islamabad and Moscow, the first cargo of discounted Russian crude oil landed in Karachi on Sunday and is currently being offloaded at the port.
Why is Pakistan paying Russia in Chinese currency?
Speaking to Reuters, Pakistan’s Petroleum Minister Musadik Malik did not give the commercial details of the deal, including pricing or the discount that Pakistan got, but confirmed that the “payment (was) made in RMB)”.
Malik stated that the crude purchased under Pakistan’s first government-to-government (G2G) agreement with Russia was 100,000 tonnes. The first 45,000 tonnes arrived at the Karachi port, and the remaining 55,000 tonnes are on their way. Pakistan completed the purchase in April of this year. Malik stated that the grade of Russian crude oil acquired by Pakistan is Urals, one of the lighter crudes available.
A new market for Russia
Pakistan’s acquisition provides Moscow with a fresh avenue to add to rising shipments to India and China as it steers oil from Western markets due to the Ukraine crisis.
Pakistan outlined a plan earlier this month to open barter commerce with Russia, Afghanistan, and Iran, indicating that the South Asian economy is looking for ways to acquire and sell commodities without using dollars. According to analysts, the movement could be from West to East.
Pakistan’s Refinery Limited (PRL) will initially refine the Russian crude oil. According to Malik, all the tests and trials had been done and the Russian crude was fit to refine and market locally.
Malik played down concerns about the financial viability and local refineries’ ability to process Russian crude. He said, “We’ve run iterations of various product mixes, and in no scenario will the refining of this crude make a loss.” “We are very sure it will be commercially viable,” he added.
Malik said it will be mixed with around 60-70% Arabian light crude for refining. He said, “No adjustments (were) needed at the refinery to refine the Russian crude.”
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The majority of Pakistan’s external payments are made up of energy imports. According to statistics from analytics firm Kpler, Islamabad bought 154,000 bpd of oil in 2022, around the same as the previous year. “We intend to target Russian crude for one-third of our total oil imports,” Malik added.
The crude was mostly supplied to Pakistan by the world’s largest exporter, Saudi Arabia, and later the United Arab Emirates.
