Russian oil

With winter just around the corner, the government is finally warming up to the idea of buying Russian oil to stack up some savings on the energy bill. On the face of it, this looks like a good idea – and it has looked like a good idea since before former prime minister Imran Khan was ousted from power. Too bad he made correct noises about it only after his exit. Even worse, the government of Prime Minister Shehbaz Sharif spent months telling us why it was a bad idea. Now that the authorities have finally come around to it, it turns out our refineries too are prepared to adjust their processes to cater to the slightly different specification of Russian crude. The veritable firesale of Russian crude in the wake of the war in Ukraine has upended the world’s energy markets while we stood by and watched. India’s Russian crude imports have exploded to around 12 times their pre-war value and Saudi Arabia, one of the world’s leading oil exporters, has become a major importer of Russian crude, eying windfall profits. Meanwhile, Pakistan’s energy bill rose by more than nine per cent over the first quarter of the current fiscal, up from $6.95 billion to $7.58 billion. The government would better move quickly now to make up for lost time as well as to make the most of the closing window of opportunity. This, however, promises to be a daunting task on several counts.

Finance Minister Ishaq Dar believes Pakistan can secure Russian crude on terms comparable or better than India’s. For starters, India is buying Russian oil in Indian rupee (as Saudis buy it in Saudi riyal). Can Pakistan also conduct this trade in the Pakistani rupee? That would be a welcome development, taking some pressure away from our meagre forex reserves. Another obstacle will be the exclusion of Russian banks from SWIFT – and the wariness of Pakistani banks from doing business with Russia at the potential displeasure of the US. Finally, there is the West’s proposed price cap on Russian oil. While the exact level of the cap is still in the works, the US and its allies are looking at around $60 per barrel. Will the price Pakistan pay be above or below that cap? Russians may be interested in keeping the price above that cap just to make a point. Pakistan would do well to steer clear of wrangling around that issue and, while how exactly to pull it off must of necessity be left to the government, quickly locking a number before the cap is announced may be helpful.

An important aspect of the matter is how Western sanctions on Russian energy have sent European energy buyers flocking to the Middle East, sending prices for both crude oil and LNG into the stratosphere and practically crowding smaller buyers like Pakistan out of the market. We have seen how some of our energy vendors broke pledges, preferring to pay punitive damages over honouring their prior contracts because high energy prices made this course of action more profitable to them. Middle Eastern friends are certainly loving this oil price bonanza – as evidenced by OPEC’s recent refusal to support lower prices in direct opposition to an American push. Economic and diplomatic ties with the West have traditionally been cited by officials and commentators to explain the low level of engagement with Russia. That mindset needs to change now, especially considering how Pakistan’s independent foreign policy has enabled a quasi-neutral stance on the Ukraine war and how Pakistan had no problem siding with OPEC over the cartel’s row over oil prices with the West. Perhaps the trickiest part will be deciding what part of our imports to substitute with Russian oil – and by how much. Pakistan has standing medium- and long-term supply contracts with Gulf countries, including some on deferred payment. Finance Minister Ishaq Dar would have to carefully weigh his options before moving – but the sooner he acts, the better.