Pakistan uses Chinese yuan to buy cut-price oil from Russia

Pakistan’s petroleum minister said the country’s first government-to-government import of Russian crude was paid for in Chinese currency
Islamabad has also outlined a process to open barter trade with Russia, Afghanistan and Iran as it seeks avenues to trade without using US dollars

Pakistan

Reuters

Published: 10:32am, 13 Jun 2023

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Pakistan paid for its first government-to-government import of discounted Russian crude oil in Chinese currency, the South Asian country’s petroleum minister said, a significant shift in its US dollar-dominated export payments policy.

Discounted crude offers a respite as Pakistan faces an economic crisis with an acute balance of payments problem, risking a default on its external debt. The foreign exchange reserves held by the central bank are scarcely enough to cover a month of controlled imports.

The first cargo of discounted Russian crude oil arranged under a deal struck between Islamabad and Moscow earlier this year arrived in Karachi on Sunday. On Monday it was being offloaded at the port in the southern city of Karachi.

Petroleum Minister Musadik Malik, speaking by telephone on Monday, did not disclose the commercial details of the deal, including pricing or the discount that Pakistan received, but said, the “payment [was] made in RMB”.

Chinese renminbi banknotes. Pakistan’s petroleum minister said the South Asian nation used the Chinese currency to buy its discounted Russian oil. Photo: Shutterstock

He said the purchase, Pakistan’s first government-to-government deal with Russia, consisted of 100,000 tonnes, of which 45,000 tonnes had docked at Karachi port and the rest was on its way. Pakistan made the purchase back in April.

About its grade, he said, it is Urals, adding this is one of the lighter crudes available.

Pakistan’s purchase gives Moscow a new outlet to add to growing sales to India and China, as it redirects oil from Western markets because of the Ukraine conflict.

Despite being a long-standing Western ally and the arch-rival of neighbouring India, which historically is closer to Moscow, analysts say the crude deal also presents a new avenue for Pakistan at a time when its financing needs are great.

Islamabad earlier this month also outlined a process to open barter trade with Russia, Afghanistan and Iran, another sign of the South Asian economy seeking avenues to buy and sell commodities without trading in dollars, which analysts say could be a shift from West to East.

Pakistan’s Refinery Limited will initially refine the Russian crude, the minister said. He had earlier referred to the purchase of the shipment as a trial run to judge financial and technical feasibility, but said on Monday that all the tests and trials had been done, which found that the Russian crude was fit to refine and market locally.

He played down concerns around the financial viability and the ability of local refineries to process Russian crude given Pakistan’s historical importation of Middle Eastern petroleum products.

“We’ve run iterations of various product mixes, and in no scenario will the refining of this crude make a loss,” Malik said, adding: “We are very sure it will be commercially viable.”

A vendor mans his stall at a market in Islamabad amid a nationwide blackout in January. Pakistan was so desperate to prevent more power outages that it struck a deal to buy discounted Russian oil in April, breaking ranks with US-led sanctions efforts. Photo: AP

It will be blended with around 60-70 per cent Arabian light crude for refining, he said, adding, “No adjustments [were] needed at the refinery to refine the Russian crude.”

Malik wouldn’t say how much difference the crude will make to prices at the pump in the local market, but said “it will surely make a difference”.

Energy imports make up most of Pakistan’s external payments. Islamabad imported 154,000 barrels per day of oil in 2022, around the same as the previous year, data from analytics firm Kpler showed.

“We’re looking to target one-third of our total oil imports at the Russian crude,” the minister said.

The crude was predominantly supplied by the world’s top exporter Saudi Arabia followed by the United Arab Emirates.