By: Abdullah Liaquat
The primary freight of limited Russian unrefined petroleum organized under another arrangement between Islamabad and Moscow showed up in Karachi on Sunday, opening another part of helpful exchange relations between the two nations. Over a month ago, the shipment left Russia and traveled through Oman to Pakistan. According to officials, the Pakistan Refinery Limited (PRL) would process the oil and begin the discharge on Monday (today).
The Karachi port was unable to accommodate the larger ships, so the 100,000 metric tons of oil were split in half at Oman during its long journey. The two smaller vessels, each carrying 50,000 metric tons of oil, set sail for Karachi from Oman. Prime Minister Shehbaz Sharif wrote on the microblogging website Twitter following the cargo’s arrival that Sunday was “a transformative day” and that “I have fulfilled another of my promises to the nation.”
“We are progressing toward prosperity, economic growth, energy security, and affordability one step at a time.” He tweeted, “This is the first oil shipment from Russia to Pakistan and the beginning of a new relationship between Pakistan and Russia.”Prime Minister Shehbaz praised all those who remained involved in this national endeavor and contributed to making the Russian oil import promise a reality in further writing on his Twitter handle.
Sources claim that this Russian oil shipment would not be included in the country’s oil pricing system. According to the sources, this meant that the PRL would either benefit from or suffer from the Russian oil. A report would be sent to the federal government for future decisions regarding long-term commercial oil deals, according to the sources, adding that the shipment was a test case to examine the quality of the crude oil and the ratio of refined products.
Pakistan had ordered the initial shipment of Russian crude oil at a reduced price of up to $18 per barrel. According to the sources, Islamabad adhered to the Platts crude oil prices, which resulted in a Platts minus a discount of $16-18 per barrel. According to sources, Pakistan will investigate the economics of discounted refined petroleum products. They added that Pakistan had received oil specifications from Russia that were not particularly favorable.
Additionally, the Russian oil freight was excessive. Sources claim that Russia offered discounted rates ranging from $16 to $18 in order to match the quality and freight of Arabian light oil that Pakistani refineries were currently processing. In addition to the difference in quality and freight, the ratio of refined petroleum products produced from Russian oil to crude oil was also different, which may have an impact on the economics of the petroleum products produced from Arabian oil at the moment.
Russian crude oil is said to produce 32% high-speed diesel (HSD) and 50% furnace oil, while Arabian oil produces 45% HSD and 25% furnace oil. A source stated, “If we take such a ratio, Pakistan requires a higher discount from Russia.””Pakistani treatment facilities have previously been dealing with issues in consuming heater oil after the nation’s power plants moved towards LNG [liquefied petrol gas] fuel. The processing plants are additionally worried about discarding the weighty volume of heater oil.”During the Pakistan Muslim League-Nawaz (PML-N) government in 2015, Pakistan imported LNG for the first time. However, the government had not conducted adequate research regarding the use of furnace oil at the time.
Since that time, Pakistani treatment facilities had forever been in a difficult situation and went on halfway closed downs a few times after the power area wouldn’t lift the heater oil. Furnace oil was exported at a lower cost by some refineries as well. Sources claim that the Pak-Arab Refinery Limited (PRL) and Parco had already exported furnace oil at a loss of approximately Rs30,000 per ton. Thus, they added, the edges of the processing plants spiked in the ongoing year to assist them with making due.
Another source stated, “If the current situation continues and refineries face the problem of low demand for furnace oil, they will be forced to export, resulting in negative profits.” Therefore, if the Russian oil contains a lot of furnace oil, it could be a problem for refineries. Besides, high cargo charges would likewise upset the financial matters of the Russian raw petroleum that required nearly 30 days to arrive at Pakistan,” the source said, adding that the oil from Bay nations scarcely required three days to arrive at Pakistan.
Russia has offered to pay Pakistan in three different currencies: the UAE dirham, the Chinese yuan, and the Russian ruble. However, the two nations have agreed to pay for the Russian oil shipment in Russian rubles. Pakistan had opened Letters of Credit (LCs) with the Bank of China to make the payment because the country didn’t have enough dollars and the US and Russia were fighting over the Ukraine issue.
Critical analysis:
A significant turning point in the development of trade ties between the two nations occurred recently when Pakistan received its first shipment of oil from Russia. This occasion conveys both positive and possibly regrettable ramifications. On the positive side, differentiating Pakistan’s oil sources by including Russia as a significant provider can improve the country’s energy security and decrease its reliance on a solitary source. It additionally opens up new roads for monetary participation and reinforces discretionary ties between Pakistan and Russia. In addition, consumers and the economy as a whole stand to gain from more competitive pricing on the Pakistani market if Russian oil becomes available.
Notwithstanding, this improvement likewise raises specific worries that warrant basic investigation. First and foremost, this trade partnership’s long-term viability and sustainability must be evaluated. Given Russia’s history of geopolitical complexities and its own shifting priorities in the global energy market, Russia’s consistency as a supplier may be in doubt. The steady flow of oil could be disrupted by political tensions or shifts in international relations, putting Pakistan in a vulnerable position. Moreover, the natural effect of depending on petroleum derivatives, especially with regard to environmental change and the worldwide progress towards cleaner energy sources, brings up issues about the drawn-out astuteness of putting resources into oil exchange. To ensure a more long-lasting and resilient energy sector in the future, Pakistan should prioritize the development of renewable energy simultaneously.
The writer is a student in the School of Politics and International Relations at Quaid-e-Azam University, Islamabad. He can be reached at [email protected]