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Tuesday February 07, 2023

Pak team leaves for Moscow today to discuss Russian crude oil import

November 28, 2022
A representational image of oil excratction. — AFP/File
A representational image of oil excratction. — AFP/File

ISLAMABAD: Pakistan’s official delegation will leave for Moscow on Monday (today) on a three-day visit for talks with the Russian authorities to explore possibilities of import of crude oil at a discounted price, mode of payment, and shipment cost, etc.

“Both sides would also deliberate on futuristic cooperative areas including two gas pipelines that include the much-touted Pakistan Stream Gas Pipeline (PSGP), to be laid from Karachi to Lahore and a trans-nations gasline from Russia via Kazakhstan to Pakistan,” one of the top officials of the Energy Ministry told The News. “Pakistan would discuss on how to import crude oil from Russia, advance on stalled negotiations about the $3 billion PSGP, and a newly-proposed trans-nations gasline from Russia via Kazakhstan to Pakistan,” he explained.

Pakistan, the official said, would be represented by State Minister for Petroleum Musadik Malik, Secretary Petroleum Capt (retd) Muhammad Mahmood and another senior officials. “The officials of the Pakistan Embassy in Moscow would also be a part of the talks.”

According to industrial ministry sources, Russian crude oil can be processed in Pakistan’s refineries, and in the past one private refinery had used Russian crude oil and made finished products out of it.

Under sanctions by the US, EU and the UK due to the invasion of Ukraine, Russian ships are not allowed to transport fuel products to any country. Now under the current scenario, traders purchase the Russian oil and sell it to the buyer country with a 5-6 per cent premium. This is how the cost of the Russian product also escalates because of the premium of traders and shipping cost.

The main problem will be the mode of payment for Pakistan if it imports Russian oil. Russia gets the rubles from the buying countries, and rubles are linked with gold.

However, after the payment mode is finalised, and if the landed cost of Russian crude oil in Pakistan remains feasible even after traders’ premiums and shipping and insurance costs, then some refineries would not hesitate to import the Russian oil.

However, the industrial sources said that it all depends on the discounted price, mode of payment and shipping cost Pakistan’s official delegation negotiates with the Russian authorities.

The US and EU and UK are intending to impose by December 5 a price cap on Russian crude oil in the international market somewhere between $65 and $70 per barrel. However, there are reports that some EU countries may have difference of opinion on the price cap, which may delay the announcement of the price of Russian oil by G-7 countries. Russia’s flagship crude grade Urals currently trades at around $52 per barrel, more than $10 a barrel lower than the low end of a proposed G7-EU-UK price cap of $65-$70 per Russian barrel of crude.

After the price cap, the EU countries would use their own vessels for using the Russian oil below the price cap and transactions would be done through their banks under SWIFT mode.

However, there are also reports that Russia would retaliate in case of the imposition of price cap. Russia would take it as its defeat and can retaliate by reducing the flow of its crude oil in the international market, which will help surge the crude oil price to an unimaginable level and would increase its emphasis on exporting its crude oil to the buyer countries on bilateral level as it is currently doing with India and China based on transaction through rubles.

And more importantly, OPEC (Organisation of Petroleum Exporting Countries) may also retaliate in case of the price cap on Russian oil fearing that the EU and Asian countries would go for the purchase of Russian oil because of the price cap and their sale would get hurt. The G7 countries are also making up their mind to impose the price cap on Russian finished oil products.

Coming to the $3 billion Pakistan Stream Gas Pipeline project, the official said that the Russian side would take up this project with the visiting delegation. The progress on the shareholding agreement on PSGP between Russia and Pakistan was made to a reasonable extent, but on some clauses, there was no advancement. It was supposed to be inked in Moscow during the visit of Imran Khan, the then prime minister, to Russia on Feb 24-25, 2022. However, Russia invaded Ukraine during Imran Khan’s visit to Moscow, and the US, EU, and the UK imposed sanctions on Russia and its entities, also involved in the PSGP project. “Since then, further talks on PSGP were not held between Pakistan and Russia.”

As far as the newly-proposed trans-nations pipeline, Russia provides gas to Kazakhstan, and wants to extend the pipeline to Pakistan through Afghanistan. “Moscow also wants to make the TAPI project part of its Kazakhstan pipeline project.”

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