Former prime minister Imran Khan and current Finance Minister Ishaq Dar’s rhetoric to import Russian oil contradict the situation on the ground. The Pakistani oil sector has already made several failed attempts to import oil from Russia.
A third-party oil supplier had offered the Pakistani Refinery Limited (PRL) an opportunity to import oil at discounted rates.
Despite making concerted efforts, the Pakistani side failed to materialise the plan due to the US sanctions imposed against Russian companies.
Sources say that following the war in Ukraine, the US and its allied European countries went into a tussle with Russia, even payments to third-party suppliers of oil from Russia became choked.
Suppliers are required to provide details of the country of origin regarding imported products and the products of Russian origin are not accepted by banks.
Sources revealed that PRL had made efforts to import oil from Russia but failed due to the implications brought on by the Ukraine crisis.
When Trifigura, a third-party supplier, offered to supply PRL with Russian oil at discounted rates, PRL had approached Pakistani banks including Habib Bank Limited (HBL) and the National Bank of Pakistan (NBP). However, both banks refused to open letters of credit (LCs) when they saw that the crude oil was of Russian origin.
Officials said that HBL and NBP had already paid a penalty in the United States and were, therefore, were not willing to open the requisite LCs. These banks informed PRL that the route of payment is through dollars and consequently, they would not be able process the LC.
Despite there being no explicit directions from the Pakistani government regarding the import of oil or other products from Russia, PRL faced problems.
Sources say that the same case applies to the shipping industry. Shippers are not ready to carry supplies from Russia. They are to receive payments in dollars from suppliers and therefore, due to the threat of US sanctions, they are not ready to take supplies from Russia.
“Moreover, there is a banking clearing system in dollars called ‘Swift’. Under the current sanctions regime, the US has excluded Russia from the Swift system and that was also creating problems,” industry officials explained.
Officials stated that following the Ukraine war, oil shortages emerged in the global market. Due to the sanctions on Russian gas and oil, the demand for diesel increased in European countries. As a result, refineries operating in the Middle East shifted their supplies to the EU to make higher gains.
Pakistan State Oil (PSO) has been importing diesel from Kuwait at a $2.4 dollar premium. Accordingly, PSO had to arrange a diesel cargo at a higher premium from the global market due to a shortage of supplies.
Global markets are also facing a shortage of gas. For the last several months Pakistani LNG Limited has been making efforts to import LNG but failed to arrange even one cargo of LNG to meet domestic needs.
Petroleum division officials said that the government was interested in importing oil and LNG from Russia on government-to-government basis. However, the current sanctions against Russia were resulting in difficulties in bringing this deal to fruition.
Pakistan will have to seek exemptions from the US to import oil and LNG from Russia due to the exclusion of Russia from the Swift banking clearing system. As a consequence, banks are not ready to open LCs, as was the case for PRL.
Sources say that Saudi Arabia and other Middle Eastern suppliers maintain a monopoly in the Pakistani market and therefore, will seek to retain this grip in the future.
In the current scenario, the incumbent government cannot afford any conflict with Saudi Arabia which has been supplying oil on deferred payments on multiple occasions.
Saudi Arabia, a big supplier of oil, has also been pushing the government of Pakistan to sign an LNG deal with the kingdom. During the Pakistan Tehreek-i-Insaf (PTI) government, the Arab country offered to supply Pakistan with 18 LNG cargoes per year, however, no agreement was reached.
Published in The Express Tribune, October 22nd, 2022.
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