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Will Russian Oil Solve Pakistan’s Problems?
Pool Photo via Associated Press, Sergei Ilnitsky
South Asia

Will Russian Oil Solve Pakistan’s Problems?

Discounted oil imports from Russia will enable the ruling coalition to offer voters subsidized fuel ahead of elections.

By Umair Jamal

In a move that could help its economy, Pakistan is set to receive its first shipment of Russian oil in the coming weeks. This is an important development for a country facing an economic crunch, as it will reduce the burden on foreign exchange reserves. The import of Russian oil will not only help Pakistan meet its energy needs but also provide a much-needed boost to the economy.

Reportedly, Pakistan is looking to import two-thirds of its oil requirements from Russia. It appears to have already sorted out payment terms with the help of China.

Pakistan has not failed to notice that Russian oil is considerably cheaper than other sources, and it also has the infrastructure in place to refine it. With this shift, Pakistan hopes to save money on its energy costs and benefit from Russia’s excess supply following the ban on Russian oil by the European Union and other countries.

The Pakistani government has set its sights on discounted oil imports from Russia as a way to offer subsidies and provide relief to its citizens ahead of elections. Parties in the ruling coalition feel that their electoral prospects have taken a hit due to mounting inflation and the country’s bad financial situation. A government official told The Diplomat on condition of anonymity that the International Monetary Fund (IMF) has obstructed the government’s every move to offer subsidies on fuel, which has become a major challenge for political parties in power as they eye the next elections.

Under pressure from the IMF, the government was forced to revoke its flagship fuel subsidy scheme in May. The IMF warned the government that offering grants on fuel will lead to an increase in public debt and will worsen the country’s fiscal deficit. It has also warned that such a move could have serious implications for macroeconomic stability and public finances in Pakistan.

Apparently, Pakistan’s policymakers have been able to convince the United States and other Western countries that their decision to import Russian oil will not threaten their interests.

Masood Khan, the Pakistani ambassador to the U.S., recently said that Islamabad was buying Russian oil with Washington’s implicit approval. “We have placed the first order for Russian oil, and this has been done in consultation with the United States government. There’s no misunderstanding between Washington and Islamabad on this count,” Khan said.

“They have suggested that you are free to buy anything below or up to the price cap, and we have abided by that agreement. I think Washington is fine with that,” Khan added without elaborating.

There are, however, concerns that can impede Pakistan’s plans to increase its dependence on Russian oil in order to provide relief to the masses and ease pressure on its rapidly depleting foreign exchange reserves.

Pakistan’s recent decision to import oil from Russia has raised a lot of questions in the international community. The United States has allowed Pakistan to continue importing oil from Russia for some time, but it is unclear if this will be allowed in the long run.

Western diplomats based in Islamabad believe that the permission offered to Pakistan by the U.S. is due to the fact that the country is facing default and needs a discounted supply of oil. This could be seen as a temporary solution for Pakistan, but it seems unlikely that it will be allowed to continue this arrangement indefinitely amid the ongoing Ukraine war and other tensions between Russia and Western countries.

In addition, Pakistan’s likely use of Chinese currency to pay Russia for oil purchases might not be a sustainable solution in the long run. Despite China helping Pakistan pay its dues to Russia, there are concerns that Pakistan may not be able to repay the debt on time to Beijing. In recent years, Pakistan has struggled to pay for projects funded by China because of the country’s weak financial condition, and there are concerns now over how Pakistan will pay Beijing for the Russian oil.

Additionally, it is unclear how the discounted oil purchase might affect Pakistan’s political situation. The first shipment was supposed to reach Pakistan in March but has not yet arrived. Once the oil arrives, the country will have to work on it to refine it, and then consider its potential use.

Moreover, Pakistan cannot expect to offer an impactful subsidy to a population of more than 230 million on the basis of one shipment alone. Even if Pakistan goes ahead with the plan to offer oil subsidies, the IMF will be watching to see if the government uses its funds for political purposes.

While Pakistan’s ambitious plan to shift the majority of its oil import to Russia looks good on paper, it will take years of impeccable policy consistency and successful steering of international politics before the country can successfully reach the goal.

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The Authors

Umair Jamal is a correspondent for The Diplomat, based in Lahore, Pakistan.

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