Pakistan’s much-hyped oil import deal with Russia runs into rough weather

Islamabad’s euphoria over receiving discounted Russian oil could be short-lived. Pakistan, which received the first consignment of Russian oil in June, may have to revisit the deal. In less than two months, policymakers have indicated that the target of crude imports from Russia is unlikely to be adhered to.

Pakistan placed an order for the import of 100,000 barrels of crude per day which account for about two-thirds of its total oil imports.

Analysts said that with Pakistan now relying more on the International Monetary Fund (IMF) for economic support, pressure from the west will mount on Islamabad to rejig its plans of oil import plans from Russia. But more importantly, Russia has been supplying only crude oil to Pakistan, unlike the refined oil that is supplied by Saudi Arabia, The Interpreter under the aegis of Sydney-based think tank Lowy Institute said. According to the report, Pakistan would have to cough up an additional refining cost of about $4 per barrel. This will significantly add to the cost, which may not be easy for Pakistan to bear at this junction.

The Interpreter also earlier noted that Pakistan’s refineries were “not accustomed to refining the hard Russian crude oil.”

Reuters recently said that the increased shipping costs are already causing problems.

The news agency said that the “transportation costs for Russian crude are higher than for Middle Eastern crudes not only because of the longer distance travelled, but because Pakistan’s ports cannot handle the large vessels departing Russia.”

The cash starved South Asian nation is also low on foreign exchange reserves. Though it is understood that Pakistan was to make the payment for oil in Chinese yuan, it does not have enough reserves of the currency.

The country broke into celebrations after it received the first shipment of crude oil from Russia in June. Prime Minister Shehbaz Sharif called the day “transformative.” However, the euphoria is rapidly eroding.

“I have fulfilled another of my promises to the nation. Glad to announce that the first Russian discounted crude oil cargo has arrived in Karachi and will begin oil discharge tomorrow,” Sharif tweeted on June 11. “Today is a transformative day. We are moving one step at a time toward prosperity, economic growth and energy security & affordability,” he further said.

In less than two months, Pakistan’s authorities have indicated that the deal may be revisited despite getting at a discounted rate.

Meanwhile, Pakistan may have to announce another round of fuel price hike this month. As mandated by the IMF, prices have already been increased.

The Express Tribune said that the impact of these price increases, both recent and potential, could significantly shape the inflation reading for August. Pakistan recorded an inflation rate of 28.3 per cent for July. Though inflation has been easing for the past two months, it is still enormously high causing difficulties for the common citizens.

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