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Russian oil idea unlikely to get traction in Pakistan

  • Can save no more than $1bn a year due to limited local oil refineries' capacity and their long-term contracts with Middle East oil companies
Published October 21, 2022
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ISLAMABAD: Crude oil and refined products from Russia at a discounted rate could save no more than an estimated $1 billion a year due to limited local oil refineries' capacity and their long-term contracts with Middle East oil companies, an official of Petroleum Division told Business Recorder on condition of anonymity.

Pakistan will be open to buying Russian oil at discounted rate, if offered, and if the US sanctions are not applicable to this purchase. Petroleum Division told this correspondent that there is no documentary evidence in the Division of a Russian offer of cheap LNG, crude oil and/or POL products, as repeatedly claimed by former premier Imran Khan.

On Wednesday, Finance Minister Ishaq Dar told reporters, “If India is buying oil from Russia, we also have a right (to do so).”

The oil import bill of Pakistan rose by over 105.31 percent to $ 23.31 billion in fiscal year 2021-22 against $ 11.35 billion in 2020-21. Imports of petroleum crude increased by 80.18 percent, from $ 3,107.314 million in 2020-21 to $ 5,598.674 million during financial year 2021-22.

Pakistan State Oil (PSO) imports 70 percent refined oil because five local refineries have the limited capacity to process no more than 30 percent of total domestic consumption.

Pakistan keen on purchasing Russian oil, says Ishaq Dar

A refinery official told Business Recorder that a blend of Russian discounted crude with other crudes from Gulf countries can result in annual savings of around $1 billion in the country’s total import bill.

India has emerged as Moscow’s second biggest oil customer, after China, since Moscow’s invasion of Ukraine late February 2022.

At one point Russian Ural crude was more than $30 a barrel cheaper than Brent crude (the global benchmark). By end September 2022 it was around $20 a barrel cheaper than Brent. India imports nearly 50 percent of its total gas requirements mostly from the Gulf States, with very little from Russia.

In July 2022, Pakistan’s five oil refineries informed the government that the main problem with a deal with Moscow was that only up to 30 percent of Russian crude could be processed locally due to technical and operational constraints. The refineries also shared their concerns over how payments would be made and how their LCs [letters of credit] processed as Russian banking channels are closed for international payments.

As Pakistan evaluates the costs and benefits of Russian oil imports, experts said since Pakistan had no pre-existing contract to buy oil from Russia, it would be hard to expect exemptions from international sanctions.

Refinery officials further stated that even if Pakistan begins to import oil from Russia, it will continue to secure its petroleum imports from Gulf countries.

Three domestic refineries have long-term contracts with Gulf oil producers and they confirmed to Business Recorder that they can refine only 30 percent Russian oil, which implies that the remaining volume must come from the Gulf region.

US Embassy reportedly conveyed in a demarche about a ban on services related to maritime transportation of Russian crude oil and petroleum products. A coalition of US, the G-7, and the EU will implement a policy to ban a range of maritime services and transportation related to Russian origin crude oil (from December 5, 2022), and petroleum products (from February 5, 2023). However, an important exception to this policy ban is that a jurisdiction may purchase seaborne Russian oil at or below a price cap.

Present government in June 2022 sought recommendations from industrial experts and major local refineries on importing crude oil from Russia, asking for input on the technical suitability of crude grades, quantity and transportation of freight in comparison to imports from the Middle East. The government specifically sought advice on “payment methodology” in case of crude oil import and “existing commitment to upliftment from the Arab Gulf region with respect to term contracts.”

Copyright Business Recorder, 2022

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Syed Arif Hussain Zahidi Oct 21, 2022 03:46pm
Absolutely not ? Arrange for purchase and storage. The right answer. Not necessarily in Pakistan store it wherever facility is available. Don't waste this chance, saving 1 or 2 billions per year is not small by any means.
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