Pakistan buys Russian oil in Chinese yuan, aiming to alleviate its economic crisis and reduce reliance on the US dollar. Minister of State for Petroleum Mossadegh Malik told Reuters last Monday that his government had used Chinese currency to buy crude oil from Russia. This initiative of the Government of Pakistan is being considered as a major policy decision.
The supply of crude oil at subsidized rates from Russia is being seen as a relief for Pakistan’s crisis-ridden economy and inflationary public.
Prime Minister Shehbaz Sharif has claimed in his speeches during the last week that Pakistan is getting 15 dollars per barrel of cheap oil from Russia compared to the world market. Presently, Pakistan encounters a distinct challenge with its balance of payments, putting the nation in jeopardy of defaulting due to external debt.
The prevailing circumstances indicate that Pakistan’s Central Bank finds itself with insufficient foreign exchange reserves to cover the cost of imports for a mere month. It may be noted that the concessional Russian oil agreement between Pakistan and Russia was signed earlier this year and the first consignment reached Karachi last Sunday.
What Did Pakistan Say About the Agreement?
Last Monday, Mossadegh Malik told the Reuters news agency that ‘the payment was made in Chinese yuan.’ He has said that this is a one lakh ton deal, of which 45,000 tons have reached Karachi port and the rest is on its way. He also said that this crude oil will be processed in the refinery which will benefit the local market. Pakistan’s dollar-denominated payments to other countries include energy imports.
According to Kepler data, Pakistan imported 154 thousand barrels of oil per day in the year 2022. He also said that our target is to import one-third of our oil from Russia. Most of the crude oil in Pakistan was imported from Saudi Arabia and then the UAE, known as Arabian Light Oil.
“We Will Benefit from This Agreement in Any Case”
Pakistan’s Minister of State for Petroleum, Mossadegh Malik, while talking to Geo News program Aaj Shahzeb Khanzada, said that there are eight types of different oil quality in Russia, we are not taking the most light, but this low light. That is, Ural is buying.
“Our refineries are built for light Arabian crude oil, so there is no doubt that we have old technology that was built for refining that oil.” If we use a little heavy oil, it will increase the amount of black oil or furnace oil. We’ve taken all the guesswork out. We have also estimated that if black oil goes up, we will not lose, but it will also be beneficial for us.
He further said that ‘we had first ordered a sample for its accounting and then after confirmation in this regard, this oil was ordered. Pakistan Refinery Limited said that they can mix 30 to 35 percent of Russian oil with Arabian Light. Parko said they can use 25 to 30 percent and a private sector company said they can use up to 70 percent.
Mossadegh Malik said ‘One is that the price of our furnace oil will increase, which we have put in our accounting model. Second, our transportation cost will increase, so we booked a 100,000-ton ship which was brought to a port in Pakistan and transferred to two ships of 50, 50,000 as there is no such port in Pakistan. Where such a ship can land. Similarly, the cost of our insurance has also increased, but we have still benefited.’
Why Use Chinese Currency?
Mossadegh Malik said, “From Pakistan’s point of view, it does not matter to us in which currency the agreement is being made.” Because we were going to do a deal with China for the first time, the banks were nervous about doing a deal.
‘So the bank we paid through had RMB preferred. We don’t mind the dollar either.’ Pakistan is not the only country doing business in Chinese currency. Bangladesh also recently decided to pay in the Chinese currency yuan instead of dollars for a scheme. He will pay Russia $110 million in Chinese currency for the power plant under construction.
The BRICS consortium endeavors to terminate the prevalence of the dollar and initiate the utilization of alternative currencies for trade.
India also wanted to promote the purchase of Russian crude oil using the rupee. India has tried hard to trade with Russia in rupees but it has not been possible to succeed. At present, India relies on Russia as its primary source of arms and various military equipment, making Russia the foremost supplier in this domain. But this supply has now stopped as the US has banned the mechanism through which India pays Russia.
India carries a distinctive obligation, owing Russia an exclusive debt of two billion dollars as a consequence of acquiring weaponry and additional military equipment. Regrettably, this payment has remained unresolved for a prolonged period due to an existing ban.
The primary concern for India revolves around the potential risk of incurring US sanctions if the payment is executed. Conversely, Russia displays reluctance in accepting payment in Indian rupees. Indian banks opened Vostro accounts in Russian banks to buy oil by paying in rupees. It has no problem with the yuan because Russia is doing business with China continuously.
China, Pakistan, and Russia All Benefit
Analyst and journalist Khurram Hussain told BBC that the deal in yuan from Russia is a joint decision of China, Pakistan, and Russia. According to him, Pakistan signed a ‘swap facility’ agreement with China for the first time in 2011. Under this agreement, Pakistan received Chinese yuan in 2013 in exchange for rupees.
According to him, the biggest and immediate benefit of the deal in yuan for Pakistan is that it does not have to pay dollars, which does not reduce the foreign exchange reserves.
He says that although this deal will reduce Pakistan’s yuan reserves, Pakistan currently needs relief in dollars. Atul Bhardwaj, an expert on Chinese affairs, believes that the de-dollarization campaign started by Russia and China will be very successful. As trade between Russia and China grows, this new currency will be used more.
