Amid the ongoing economic crisis, Pakistan is planning to procure Russian crude oil at USD 50 per barrel, reported news agency PTI. This will mean about $10 per barrel less than the existing price CAP for G7 countries, following Russia’s invasion of Ukraine.
Crude oil is currently being sold at $82.78 per barrel all over the world.
Faced with a growing economic crisis, high external debt, and weak local currency, the Islamic country is now desperate to buy crude from Moscow at a cheaper rate.
According to the PTI report, Russia will accede the request for the discounted crude oil only after Pakistan completes all formalities related to payment as well as shipping cost insurance and premium, reported The News as cited by PTI.
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The first consignment of crude oil from Moscow is expected to arrive in Pakistan by the end of April this year, the media reported. It will pave the way for a bigger business deal in the near future.
Shipping to Russian crude oil from ports in Moscow will take about 30 days, resulting in an increase of USD 10-15 per dollar because of the transportation costs.
Initially, Moscow was worried “over the seriousness of Pakistan to mature the oil deal,” reported The Express Tribune newspaper. It further said Russia has asked Islamabad to import “one oil cargo” as part of a test to bridge the trust deficit between both parties.
Pakistan will first import one Russian crude oil ship in order to test the landing cost, reported The News as cited by PTI.
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The report further said, as cited by PTI, Pakistan will pay Russia in currencies of its close allies like China, Saudi Arabia, and UAE. This will be done as Pakistan is facing a US dollar liquidity crunch.
However, in December 2020, Russia denied providing a 30 percent discount to Pakistan on its crude oil. This was done after the delegation from Pakistan requested for price reduction during that time, reported PTI.
Cheaper oil from Russia will be a big help for Pakistan in tackling the trade deficit and balance-of-payments crisis, as energy accounts for the biggest share of Pakistan’s imports.
Pakistan continues to suffer from severe foreign exchange reserve shortages. Currently, any short or long-term deals with Russia to take crude and oil products at low prices would help reduce the financial burden on Pakistan, reported PTI.
A few weeks ago, Pakistan’s foreign exchange reserves plummeted to a critically low level of USD 2.9 billion. At present, it is close to USD 4 billion. Meanwhile, Pakistan is currently in talks with the International Monetary Fund (IMF) to receive economic bailout tranches of USD 1.1 billion.