Fossil fuels and other petroleum-based products are Pakistan’s top import, and given how flimsy our foreign exchange reserves cushion has grown in recent weeks, small wonder the markets are jittery about fuel import LCs. The central bank’s assertion that no curbs are in place over LCs for fuel imports should go some way towards placating the markets, but the spectre of the fuel pump running dry will continue to haunt our economy until the treasury is flush with dollars – or the authorities have found an alternate means to finance fuel imports. Under the circumstances, petroleum imports from Russia in a non-dollar currency look like an idea whose time has come. The way the Pakistani and Russian authorities have grabbed the opportunity of the three-day Pakistani-Russian Intergovernmental Commission on Trade, Economic, Scientific and Technical Cooperation to iron out the issues surrounding Russian petroleum exports to Pakistan is therefore encouraging.
There is no denying that Pakistan has been slow to wake up to the prospect of cheap oil purchases from Russia after the invasion of Ukraine and its attendant Western backlash. Our neighbours China and India have been the top two countries to tap into this windfall of fortune, saving heaps of foreign exchange as well as diversifying their sources of fossil fuel imports. Let us hope it is not too late for Pakistan to join the party and make some much-needed forex savings of its own. It will be interesting to watch, however, if Prime Minister Shehbaz Sharif and his economic managers can make this pivot to the Russian oil market strategic, as opposed to a one-off rainy-day transaction.
Russia is the world’s third-largest oil producer, accounting for around 11 per cent of the global oil supply, and the world’s second-largest natural gas producer, responsible for pumping about 22.5 trillion cubic feet of natural gas every year. Pakistan has remained aloof to this major petroleum market up until now because of both its fraternal ties with the Gulf oil producers and its close alignment with the Western Bloc. Recent developments on both these fronts, however, should have taught Pakistan the value of keeping all options open, which is likely why the authorities have warmed up to the prospect of oil imports from Russia in the first place. However, there is the danger of Islamabad approaching the deal as a selfish ploy to tap into the cheap supplies enabled by the West’s $60 price cap on Russian oil. It is up to PM Sharif to ensure that this does not turn out to be the case.
Given that we are alive in an era when energy security has become the central pillar of national security, Pakistan needs to rethink all aspects of its energy mix. PM Sharif and his aides are rightly hot on renewable energy, and the high priority the government attaches to expansion of renewable energy resources should stay on. However, there is no reason to expect an overnight switch to renewable energy; which is to say our economy is wedded to imported fossil fuels for the foreseeable future. However, Pakistan has no compulsion to limit its options to the Gulf oil market. That having Russian oil on tap should protect us from any price spikes and supply bottlenecks of the Gulf market is obvious. More importantly, it should stand us in a good stead in the event of a hiccup in our strategic ties with Gulf sheikhdoms or the West, with whom the oil economies of the Gulf are tightly aligned. But perhaps most importantly, Russia is open to trading in a non-dollar currency. In fact, the yuan has already become the currency of choice for Russia-China trade, and India is reported to have transacted some oil trade in the Indian rupee in recent times.
The drift is that nothing seems to stand in the way of Pakistan paying for Russian oil in Chinese yuan, which should not only take some pressure away from our forex reserves but also protect us from price spikes emanating from unfavourable changes in the rupee-dollar parity. To be sure, there’s still many a slip ’twixt the cup and the lip, but officials are already dropping hints of signing an oil purchase deal with Russia as early as in March 2023. Here’s hoping the authorities can smooth over the path to that eventuality, overcoming any technical and technological issues in time.