evolutionising any sector of an economy, especially a developing economy, requires significant efforts on the part of the policy-making community.

The recent oil import from Russia has opened an avenue for energy security and affordability in the short term. However, we need to analyse its long-term implications and integration into Pakistan’s strategic agenda. To enable long-term economic success, emerging economies should try to build as much flexibility in their trade relations as possible in order to protect themselves from shocks like the Covid or the Ukraine war.

Russia is re-emerging as an important player in Asia. It has great potential for trade with Pakistan. The recent crude oil shipment that reached Pakistan on June 12, will hopefully open up doors for import of other essentials from Russia, too. On the diplomatic front, a positive aspect of this deal is that it has created precedence for similar trade deals for Pakistan, including but not limited to importing wheat from Russia and natural gas from Iran.

On the other hand, this could jeopardize the prospects of arrangements such as the EU GSP+ and exports to the US, thereby further aggravating the balance of payment problem that Pakistan is facing.

One of the core issues in Pakistan’s economy is energy supply. The procurement of Russian oil and its incorporation in Pakistan’s energy mix can, a) diversify our options and enhance our energy security, and b) have a positive effect on energy prices. In the short to medium term, this transformation can result in a lower cost of living and a lower cost of doing business in Pakistan.

Some of the operational bottlenecks include the transport and logistics of the crude oil and the refinement of the crude oil. Most of Pakistan’s oil imports take place through the UAE. The freight distance is 1,300 kilometres; in Russia’s case, it is nearly 8,000 kilometres. The transportation cost, according to experts may be up to threefold.

The refinement requirements for oil are the second potential bottleneck. The refineries in Pakistan are currently set up for the light crude imported from the Arab countries. The resultant refined output is around 45 percent diesel and 25 percent furnace oil. The heavy crude being imported from Russia, according to experts, will require significant adjustments in the refinery process that might add a $4 per barrel cost.

Additionally, the refined outputs are expected to have more than 50 percent furnace oil and 32 percent diesel. This might not reflect Pakistan’s needs in the energy sector as only about 15 percent furnace oil is required.

Another experiment the government of Pakistan has carried out with this deal was the use of the yuan as a transaction currency. This was a result of a currency swap agreement between the central banks of Pakistan and China. The letter of credit instruction was given by the Pakistan government to the Bank of China for taking up with the Russian authorities. Moscow offered the option of making payments in three currencies, including the UAE dirham, Chinese yuan and Russian ruble.

The decision to pay in yuan came in the wake of US sanctions on Russia. Although in the short term, Pakistan had to buy yuan from the open market against US dollars, in the future the currency flexibility in cross-border trade can add a degree of freedom.

From a diplomatic angle, the US State Department has shown a realisation that countries are sovereign in their decisions related to energy security. This is primarily due to similar precedence being set by India.

Given an international economic recession on account of the Ukraine war, the oil import will be a function of diplomatic relations, national priorities, long-term planning and energy transition policies. For this project to turn into long-term policy and be beneficial in the long term, a strategic reform-based agenda is required.

This may include integration of long-term plans for Pakistan’s energy sector through bilateral and multilateral schemes, including programmes like China Pakistan Economic Corridor (CPEC) and Central Asia Regional Economic Corridor (CAREC). Focus on sustainable development goals and the clean energy transition agenda will authenticate the actual way forward.

The Russian oil import is a pilot project. It could open several modes of economic sovereignty for Pakistan. The trade deal involves several experiments that may have long-term implications. The operational success of the deal will be dependent on the reports that come out of the Pakistan Refinery Limited (PRL) in a few days. These will state the quality, yields and commercial viability of the oil. However, the long-term implications can only be reviewed through in-depth analysis and better coordination between relevant departments.

The writer is associated with Sustainable Development Policy Institute (SDPI) Centre for Private Sector Engagement and tweets @ahadnazir783. The article doesn’t necessarily represent the views of the organisation