China backs Pakistan paying Russia in RMB

This is normal trade cooperation b/w Pakistan and Russia and within scope of their sovereignty, says foreign ministry

ISLAMABAD:

China on Tuesday defended Pakistan’s decision to make international payment for its first government-to-government import of discounted Russian crude oil in the Chinese currency.

The statement came after Minister of State for Petroleum Musadik Malik, while speaking to Reuters by telephone, did not disclose the commercial details of the deal, including pricing or the discount that Pakistan received, but said, the “payment (was) made in RMB)”. The Renminbi (RMB) is the official name of China’s currency.

The Chinese Foreign Ministry in a statement said: “This is normal trade cooperation between Pakistan and Russia and within the scope of their sovereignty,” in response to Reuters query.

“As a matter of principle, we are open to the settlement of crude oil trade in RMB,” the ministry said.

Despite being a long-standing Western ally and the arch-rival of neighbouring India, which historically is closer to Moscow, analysts say the crude deal also presents a new avenue for Pakistan at a time when its financing needs are great.

Read more: First shipment paid for in Chinese currency

Islamabad earlier this month also outlined a process to open barter trade with Russia, Afghanistan and Iran, another sign of the South Asian economy seeking avenues to buy and sell commodities without trading in dollars, which analysts say could be a shift from West to East.

Pakistan's Refinery Limited (PRL) will initially refine the Russian crude, the minister said. He had earlier referred to the purchase of the shipment as a trial run to judge financial and technical feasibility, but said that all the tests and trials had been done, which found that the Russian crude was fit to refine and market locally.

Energy imports make up the majority of Pakistan's external payments. Islamabad imported 154,000 bpd of oil in 2022, around the same as the previous year, data from analytics firm Kpler showed.

Meanwhile, the minister of state for petroleum said the deal to import Russian crude oil would help the government pass on financial relief to the masses.

"This is historic as it is the first time that crude oil from Russia has arrived in Pakistan," the minister said while addressing a news conference. He refused to divulge details of the commercial terms of the oil deal with Russia due to agreements signed by both the sides for confidentiality.

He said Pakistan had imported 100,000 tons of oil from Russia initially with plans to gradually increase the quantity over time as the country would meet its quarterly oil requirements through the utilization of Russian oil.

Musadik said the government intended to ink a $10 billion contract, before the end of its tenure, so a new oil refinery could be established in Pakistan.

The minister said that Pakistan had also received a contract from Azerbaijan, which was available to the cabinet. "Under the contract, the Central Asian country would provide Pakistan a distressed LNG cargo monthly. The LNG price would be much lower than in the international market," he said.

The minister said that under the terms of the contract, it would be Pakistan's prerogative to accept the cargo or not, but Azerbaijan would be obligated to provide distress cargo monthly.

He added that at the same time, the government had offered the European countries to establish LNG plants in Pakistan, therefore, Pakistan could become a transit route for gas transportation from Central Asian countries to Europe.

Pakistan's purchase gives Moscow a new outlet to add to growing sales to India and China, as it redirects oil from Western markets because of the Ukraine conflict. Agencies