Pakistan Receives First Discounted Russian Oil Amid Economic Crisis

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Cash-strapped Pakistan has received its first cargo of discounted Russian crude oil, Pakistan’s leader said on June 11, as Pakistan seeks to forge ties with heavily sanctioned Russia amid its declining foreign reserves.

Pakistan’s Prime Minister Shehbaz Sharif said the first shipment of Russian crude oil was set to be unloaded at Karachi port on June 12.

“Today is a transformative day. We are moving one step at a time toward prosperity, economic growth, and energy security & affordability,” Sharif wrote on Twitter.

“This is the first-ever Russian oil cargo to Pakistan and the beginning of a new relationship between Pakistan and the Russian Federation,” he added.

The details about the cost of Russian crude oil and payment methods remain unclear. Russian Energy Minister Nikolay Shulginov said in January at the two nations’ annual intergovernmental commission meeting in Islamabad that the payments will be made in “the currencies of friendly countries,” WION reported.

Pakistan’s foreign exchange reserves fell to $3.6 billion in May, with the majority of external payments attributed to energy imports. The country’s crude imports are expected to reach 100,000 barrels per day after the first cargo arrives.

According to Pakistan’s Minister of State for Petroleum Musadik Malik, Pakistan aimed to import 35 percent of its total crude oil requirement from Russia.

“If we have dollars in excess, then we are ready to trade in dollars, and if there is a shortage of dollars and we have some other currency in our reserves, we are ready to trade in that,” Malik said, according to WION.

Pakistan’s purchase gives Russia a new outlet, adding to Russia’s growing sales to India and China, as it redirects oil from Western markets amid sanctions imposed in response to its invasion of Ukraine.

In May 2022, Pakistan’s Finance Ministry stated the country would import “two million metric tons of wheat on a government-to-government basis” from Russia.

The ministry said that Pakistan must figure out a way to make payments for Russian imports, given that Russian banks have been blocked from the SWIFT international payment network. The National Food Security Ministry had suggested exploring barter trade with Russia.

The ministry also noted that Pakistan has an “open policy,” implying that the government will seek “options and avenues” when there is a “national interest.”

“There is a shortage of food grain in Pakistan. And there is a decision also to import a certain quantity of wheat utilizing various options, international bidding and [government-to-government] options,” the Foreign Affairs Ministry spokesperson told reporters in May 2022.

Hundreds of people in Pakistan line up for one bag of government subsidized flour in February 2023. (Courtesy of Kinza Hashim, Pakistan)

The country has barely enough currency reserves to cover one month’s imports. It had hoped to have $1.1 billion of a $6.5 billion fund the International Monetary Fund (IMF) approved in 2019.

But the IMF has insisted on a number of conditions being met before it makes any more disbursements.

Nathan Porter, the IMF’s mission chief to Pakistan, said on April 15 that the IMF would need to obtain financing assurances before reaching a staff-level agreement with Pakistan on releasing the tranche.

“During the meetings between the Pakistani delegation and IMF staff and management, there was agreement on the need to maintain strong policies and secure sufficient financing to support the authorities’ implementation efforts,” Porter said.

Pakistan has imposed taxes, raised energy tariffs, and scaled back subsidies to persuade the IMF to unlock funding, and its central bank has also raised policy interest rates to a record 21 percent.

According to Human Rights Watch, at least a quarter of Pakistan’s population lived below the poverty line well before the crisis. The World Food Program estimated that 44 percent of children under 5 had stunted growth in 2018, indicating malnourishment.

Reuters contributed to this report.