Pakistan paid for its first government-to-government import of Russian crude in Chinese currency, State Minister for Petroleum Musadik Malik said on Monday — a significant shift in its US dollar-dominated export payments policy.

The first cargo of discounted Russian crude oil arranged under a new deal struck between Islamabad and Moscow arrived in Karachi on Sunday. It is currently being offloaded at the port.

Malik, talking to Reuters by phone, did not disclose the commercial details of the deal, including pricing or the discount that Pakistan received, but said the payment was made in Chinese currency.

He said the purchase, Pakistan’s first government-to-government (G2G) deal with Russia, consisted of 100,000 tonnes, of which 45,000 tonnes had docked at Karachi port and the rest was on its way. The purchase was made back in April.

Malik played down concerns around the financial viability and concerns about the ability of local refineries to process Russian crude given the South Asian country’s historical importation of Middle Eastern petroleum products.

“We’ve run iterations of various product mixes, and in no scenario will the refining of this crude make a loss,” Malik said, adding, “We are very sure it will be commercially viable.”

“No adjustments (were) needed at the refinery to refine the Russian crude,” the minister told Reuters.

Road to purchase

Last year, Finance Minister Ishaq Dar had announced that the country was considering buying discounted Russian oil, pointing out that neighbour India had been purchasing oil from Moscow and Islamabad also had a right to explore the possibility.

Subsequently, Malik had flown to Moscow for talks on issues including oil and gas supplies after which the government announced that it would purchase discounted crude oil, petrol, and diesel from Russia.

In January 2023, a Russian delegation arrived in Islamabad for talks to finalise the deal. During the three-day meeting, the countries decided to address all technical issues — insurance, transportation and payment mechanism — to sign an agreement by late March this year.

“After consensus on the technical specifications achi­eved, the oil and gas trade transaction will be structured in a way it has a mutual economic benefit for both countries,” a joint statement issued by the two sides had then stated.

In April, Malik had said Pakistan had placed its first order for discounted Russian crude oil under a deal struck between Islamabad and Moscow.

He had also said that imports were expected to reach 100,000 barrels per day (bpd) if the first transaction went through smoothly. Pakistan’s Refinery Limited (PRL) will initially refine the Russian crude in a trial run, followed by Pak-Arab Refinery Limited (Parco) and other refineries, the petroleum minister added.

Respite for Pakistan

As a long-standing Western ally and the arch-rival of neighbouring India, which historically is closer to Moscow, analysts believe the crude deal would have been difficult for Pakistan to accept, but its financing needs are great.

Discounted crude offers respite as Pakistan faces an acute balance-of-payments crisis, risking a default on its debt obligations. Energy imports make up most of the country’s external payments.

Currently, 80 per cent of Pakistan’s oil requirements of roughly 154,000 barrels per day are being met by traditional Gulf and Arab suppliers, mainly Saudi Arabia and the UAE. The 100,000 bpd from Russia in theory would greatly reduce Pakistan’s need for Middle Eastern fuel.

On the other hand, Pakistan’s purchase gives Russia a new outlet, adding to Moscow’s growing sales to India and China, as it redirects oil from Western markets bec­ause of the Ukraine conflict.