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Russia’s Refusal to Sell Discounted Oil Leaves Pakistan Desperate

The official delegation from Pakistan traveled to Moscow on November 29 for a three-day meeting with Russian officials to discuss the possibility of importing crude oil at a reduced price, as well as the manner of payment and shipping costs. According to the media reports, which cited sources from the industry ministry, Russian crude oil will be refined in Pakistan's refineries, and one private refinery has already used Russian crude oil to supply completed goods. According to a media report on December 1, a Pakistani delegate met with Russian counterparts and requested a 30–40% discount on crude oil, but Moscow rejected the request, stating that all volumes were already promised.

During discussions on Wednesday in Moscow, the team, which included State Minister for Petroleum Musadik Malik, Secretary for Petroleum Capt (Retd) Muhammad Mahmood, joint secretary, and representatives of the Pakistani Embassy, requested a discount in oil prices. However, the Russian side pledged to take Pakistan's proposal into consideration and to communicate its decision later on through diplomatic channels, the publication reported. Meetings came to a close without a definitive conclusion.

According to the article, Russia can provide oil at the same prices it is offering to its major client countries, which have stable economies, at a good time. According to sources, all quantities are currently reserved by significant purchasers. The Russian side urged Pakistan to start by keeping its word about the much-touted Pakistan Stream Gas Pipeline (PSGP), which will be built from Karachi to Lahore. The Pakistani side wanted to change the PSGP project's model throughout the negotiations. Only a few provisions of the shareholding agreement still need to be finalized, according to the Russian side, after the project model under the GtG structure was already finalized.


Since Washington does not currently have sanctions in place against Russian energy exports to other countries, the U.S. has made it clear that it has no issues with Pakistan importing Russian crude oil. The newspaper reported a U.S. State Department officials stated, “We recognise the pressure that countries are feeling to obtain affordable fuel supplies.” The official continued, “We have been very clear that each country will have to make its own decisions, based on its own circumstances, with regard to energy imports.”

The spokesperson added that the United States continued to support measures to lessen long-term dependency on energy supplies from Russia, but cautioned that Russia's actions in the Ukraine and Europe have demonstrated that it was not a trustworthy energy provider.


Russia's rejection of this proposal has just fanned the flames and made matters worse for Pakistan, which recently experienced flooding. Large-scale flooding that occurred throughout the nation caused an estimated $30 billion in damages and according to The State Bank of Pakistan (SBP), it is reported that a $327 million has declined in its foreign exchange reserves. The SBP stated in a statement on Thursday night that the total foreign exchange reserves of the Pakistani central bank decreased to roughly $7.49 billion during the week ending on November 25. According to the statement, the decrease was "caused by repayment of external debt," according to Xinhua news agency. According to the central bank, commercial banks maintained $5.87 billion in net foreign reserves. The SBP estimates that the South Asian nation's total liquid foreign reserves were around $13.37 billion.


Along with economic issues, the nation is experiencing political unrest, and Asim Munir Ahmed, the head of the Pakistani army, was only recently appointed as the country's real leader on November 29th. And on the same day, the Pakistani delegation departed for Moscow on a three-day visit to have negotiations with the Russian government in order to gain a deeper knowledge of the prospects for importing crude oil at a reduced price, discuss payment options, and find out how much shipping would cost.


When compared to two Asian giants like India and China, who have enormous economies and consume a lot of oil, Pakistan has an inflation rate of 23.8%. India currently has $548 billion in foreign reserves, while China has $3 trillion.

Despite obtaining a 30–40% discount, the two economies can effectively make payments on schedule, and Moscow is still able to make billions of dollars in profit. Therefore, it makes sense for Russia to sell its oil to powerful nations with stable economies. as opposed to Pakistan, which has a 130 million dollar national debt and relies on aid from other countries and international financial organizations to survive, making Pakistan a less profitable market for Russia.


In addition to obtaining at least half of all Russian petroleum exports via pipelines, China and India now account for two-thirds of all Russian crude shipments by sea. Just 2 to 5% of India's crude imports come from Russia on average, which is about equal to what the US imported from Russia before it announced a blanket ban on Russian energy exports. Only 12 million barrels of Russian crude were purchased by India in 2021; the vast majority of its oil was produced in Nigeria, Iraq, Saudi Arabia, and the United Arab Emirates. As a more recent arrival, Russia eclipsed Saudi Arabia and Iraq as India's top oil suppliers in October.


The Indian government now has economic rather than political goals. India would always seek the best deal while importing oil. In the wake of the epidemic and the global slowdown, it is challenging to refuse a 20% discount on crude when 80–85% of your oil is imported, according to Samir N. Kapadia, head of trade at government relations consulting firm Vogel Group, in an interview with CNBC. It is important to remember that since starting to buy Russian crude at a discount, India has saved 35,000 crores.


Russia may be focusing on another unnoticed political ambiguity because it values its friendship with India and doesn't want to appear to be cozying up to Islamabad even though it is making significant profits by supplying energy to India. At the same time, China's energy-hungry economy is one of Russia's biggest users of oil and gas. China's imports climbed by more than two times to $10.2 billion in October compared to the same month last year as a result of Chinese importers taking advantage of Moscow's discounts. All of this combined has put Pakistan in a precarious position, especially given the state of its economy.


Recently, the European Union was unable to come to a decision on whether to approve a cap on the price of Russian oil. The price level at which the cap should be set has divided the EU's national governments. The price cap is an attempt by the West to destroy Russia's oil profits in retribution for its invasion of Ukraine while preserving global oil supplies and preventing an increase in energy prices. The easternmost members of the bloc, Poland, Estonia, Latvia, and Lithuania, opposed, saying that the suggested $60–$70 per barrel for Russian petroleum is too low and far higher than the prices at which Russia presently sells crude. The EU authorities wanted more time to create a better agreement.


It will be interesting to watch if Russia agrees to provide discounted petroleum to Pakistan in the near future given the volumes of crude that have already been promised to consumers like India and China and the looming prospect of the West's attempts to "punish" Russia for invading Ukraine.



(The Author is Pursuing Masters in Conflict Analysis and Peace building from Jamia Millia Islamia New Delhi and can be reached at Kapurmuskaan6@gmail.com).


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