Pakistan's Russian energy imports test West's patience
Pakistan has recently begun a partnership with Russia whereby Islamabad receives energy supplies from Moscow. How the West responds may dictate whether the deal works or not
Pakistan is diversifying its energy supplies and has recently started importing Russian gas and oil. This has created a ripple of excitement among many who claim these imported items are cheaper. Analysts, however, believe that such supplies are not without technical, financial and political challenges.
The Russian Embassy in Pakistan posted on social media platform X, formerly known as Twitter, last month that Islamabad had received its first shipment of liquified petroleum gas (LPG) from Russia. Moscow delivered 100,000 metric tons to Pakistan through Iran's Sarakhs Special Economic Zone, the post confirmed.
Then-Prime Minister of Pakistan, Shehbaz Sharif, had called the arrival of the Russian crude a "transformative day" for the crisis-ridden country.
He wrote on X: "I have fulfilled another of my promises to the nation. This is the first-ever Russian oil cargo to Pakistan and the beginning of a new relationship between Pakistan and [the] Russian Federation."
But many believe that the optimism of old and new administrations in Pakistan is not as realistic as it may appear because such imports could pose a number of challenges to the cash-strapped Pakistani economy besides creating political problems for Islamabad, particularly with Russia's ongoing invasion of Ukraine.
The West, which has been moving away from Russian energy supplies since Moscow invaded its neighbor in February 2022, takes a dim view of those capitalizing on Russia's economic issues created by its course of action.
Pakistan has been importing oil and gas from Arab countries and technical infrastructure was also built keeping this import from the Gulf region in view. But some estimates suggest that Russian crude oil is $60 (€56.88) per barrel and that purchased from the Gulf it is $84 per barrel.
Rana Abrar Khalid, an Islamabad-based analyst, believes that Pakistan does not have enough technical capacity to refine Russian crude oil, which is heavy. Pakistan's refineries can refine light crude oil imported from the Gulf, he told DW, while Russian oil is heavy which cannot be processed easily through the net of tubes that Pakistani refineries have. "We tried to carry out a blending of Russian crude heavy oil with light crude oil from the Gulf but the experiment did not succeed completely."
Khalid thinks Pakistan will have to set up refineries for Russian crude oil, which might need a lot of investment. "Or it can convert existing refineries in a way that it can refine Russian crude oil. This requires less investment."
An expert affiliated with a government department corroborated what Khalid said on the condition of anonymity. He told DW that Pakistani refineries have a limited capacity to refine oil while the capacity of India is much higher. "Besides, Russian oil produces a high quantity of furnace oil up to 45% while Pakistan needs 15% furnace oil for power generation. This additional amount has to be sold at throwaway prices and it is also difficult to find their buyers."
According to a report by The Express Tribune, a daily English-language newspaper based in Pakistan, there are five major oil refineries that have a combined installed capacity of just over 417,000 barrels per day in Pakistan. But these refineries are working half of their installed capacity.
A 2021 report from the International Trade Administration of the US (ITA) notes: "Pakistan's total refining capacity is approximately 400,000 barrels per day, or about 19 million ton per year of crude oil. However, the supply is 11.6 million tons per annum. This is against the current demand of 20 million ton per year."
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Pakistan's energy needs
Pakistan's energy needs are growing. According to the ITA report: "In 2019, the country produced 4.3 million metric tons of crude oil, only 20 percent of the country's total petroleum requirements. The remaining 80 percent was met through imports of crude oil and refined petroleum products worth $15-$16 billion annually. It points out that natural gas contributes 38% of the country's total primary energy supply mix. Total domestic gas production has hovered around 4 billion cubic feet per day (bcfd) while domestic demand is estimated at 6-8 bcfd."
According to Burshane LPG (Pakistan) Limited: "The total annualized demand of LPG in Pakistan is estimated at around 1.4 million tons, of which around 876,000 MT (metric tons) is produced locally, and the balance needs to be imported from neighboring countries. While the local demand of LPG is increasing constantly, its local production is stagnant. So, with every increase in local demand the import would tend to increase."
Complications due to sanctions
In response to Russia's invasion of Ukraine, the West has slapped Moscow with a number of sanctions that make it hard for countries like Pakistan to trade with the largest country on earth by territory. As a result, Khalid highlights that Pakistani companies or the government cannot make payments through the SWIFT international payment system. "Russia has its own method of payment but Pakistan is unable to follow it."
There is also an impression that Pakistan will have to reveal the exact price of Russian oil and gas to the International Monetary Fund (IMF) but Pakistan's finance minister, Dr Shamshad Akhtar, dispels this impression. There is no such condition in our agreement with the IMF, she told DW, adding the country has enough liquidity to make all payments. Responding to a question over the mode of payment, she said without naming Russia, "All payments for imports, including oil and gas, are made in dollars."
The West's dim view
It is widely believed that Pakistan is resetting its ties with Washington. Islamabad got an IMF package in recent months. It is also securing loans from the World Bank, Asian Development Bank and other regional and global financial bodies. Many in Pakistan believe that such financial assistance for Pakistan cannot be possible without the support of the US and its allies.
Dr. Noor Fatima, an expert from International Islamic University says that Washington is watchful over these oil and gas deals. They asked Pakistan about the details of such deals, she told DW, adding that the US fears that such deals could push Pakistan closer to Moscow. "The US would never be happy if we get closer to Russia or carry out trade with Moscow. But we must prefer our national interests instead of paying any heed to US pressure."
However, Dr. Zafar Nawaz Jaspal of Islamabad's Quaid e Azam University, fears that if Pakistan gets closer to Russia or continues buying oil and gas from Moscow, Washington might slap the country with indirect sanctions. "The EU could also use its leverage over the issue of GSP Plus," he told DW, adding that the US might also pressure international monetary institutions into creating financial hardships for Pakistan. "So, the West can employ different tactics to deter Pakistan from buying Russian oil and gas."
Published: 18 Oct 2023, 11:12 AM