One June 11, Pakistan’s Prime Minister Shehbaz Sharif said the country received its “first-ever” shipment of Russian oil. The shipment contained 330,000 barrels of crude, while a second shipment of 55,000 barrels arrived on June 27. Pakistan paid for the deal with Yuan, although the deal’s financial terms remain undisclosed. In April, Pakistan’s State Minister for Petroleum said Pakistan could import up to 100,000 bpd from Russia if the purchases proceed smoothly. He added that the country’s goal was to import one-third of its crude oil from Russia, and believed the discounted rates for Russian oil would reduce Pakistan’s fuel prices.
Why it matters: Russia is further expanding its markets in South Asia after becoming India’s largest oil provider and exporting oil to debt-stricken Sri Lanka last autumn. Like Sri Lanka, Pakistan is facing an economic crisis from record levels of inflation, dwindling foreign currency reserves, and a dispute over a withheld loan package from the IMF. Discounted Russian crude may prove an appealing alternative for economically encumbered states, eroding market shares of major oil producers in the Middle East and the United States.
Pakistan imported 154,000 bpd from all sources in 2022, so if the country chooses to import 100,000 bpd from Russia, it will likely come at the expense of its current major suppliers, Saudi Arabia and the UAE. Based on 2021 data, the two countries comprised 88% of Pakistan’s crude imports at a combined value of $3.2 billion. A larger switch to cheaper Russian crude could prove financially attractive to Pakistan long-term.
Nevertheless, it’s uncertain how much Pakistan and Russia’s energy ties can realistically grow. Russia is increasingly using the Yuan to avoid Western sanctions restricting its ability to use the dollar to make foreign trade transactions along with Russia’s exclusion from the SWIFT payment system. Pakistan’s foreign currency crisis casts doubt how long it can facilitate Yuan payments. The two countries’ trade deal also does not include refined oil products. Pakistan has limited refining capacity and imported $6.5 billion of refined oil products from the Middle East and China in 2021 and is Pakistan’s number one import.