The not-so mysterious Russian option

Unpacking claims of former PTI government regarding an offer to procure oil from Russia at discounted rates

The not-so mysterious Russian option


alk about procuring crude oil from Russia at a 30 percent discount appears to be more a political stunt than genuine choice. Had this been actually viable, Pakistan would have arranged much earlier low-cost oil from Iran, which is also under international sanctions.

International sanctions against different countries are imposed either by the United Nations or individual countries. These sanctions relate to trade with the target country or conducting trade with specific companies and banks. The states or companies found violating the sanctions are blacklisted from doing business in the country that imposes these sanctions. It is impossible to ignore these sanctions if these are imposed by major trading partners of a country as this can jeopardise exports to and imports from that country.

A glaring example in this regard is the stalled Pakistan-Iran gas pipeline project. Pakistan is in dire need of gas. For this reason, it agreed to enter into an agreement with Iran to bring gas through a pipeline. Iran has built the pipeline up to its border with Pakistan. It only needs to connect this pipeline with its distribution network by laying a short line. But Pakistan did not go ahead as it feared sanctions. When Pakistan signed the deed, there was hope and expectation that sanctions against Iran would be lifted. That did not happen.

There is an acute shortage of gas in Pakistan and it has been forced to import the fuel at a price it can ill afford. Why did the previous government, in its 44-month tenure, not disregard the sanctions and get cheap gas from Iran? We see LPG and diesel being smuggled through the Pakistan-Iran border and know that these are cheaper compared to global rates. But Pakistan has not officially imported oil or gas from Iran.

Western sanctions against Russia are more serious and severe than those imposed on Iran. Sanctions have been imposed on account of the Russo-Ukrainian War by many countries, including the United States, Canada, and the European Union against Russia and Crimea following the Russian invasion of Ukraine that began in late February 2014.

Sanctions lists are official lists of names that are published by various authorities on national and international levels. Sanctions lists include persons, organisations, vessels, banks and companies subject to official economic or legal sanctions. It is prohibited to provide financial or economic resources to any party on a sanctions list.

On February 28, the Central Bank of Russia was blocked from accessing more than $400 billion in foreign-exchange reserves held abroad, and the EU imposed sanctions on several Russian oligarchs and politicians. In addition, 18 Russian banks have come under the sanctions. The sanctions are tougher and more extensive than anyone might have anticipated and will likely cripple Russia’s economy and bring massive misery to its people. If this is the aim, then they will probably be successful. But this is unlikely to deter Russia from aggression in Ukraine.

As far as Russia offering Pakistan oil at 30 percent discount is concerned, the option is available to any country willing to face penalties for breaching Western sanctions.

Russia lost massive oil and gas markets as a result of these sanctions. The European countries that imposed these sanctions have been severely hit and are forced to purchase oil and gas from highly expensive sources. Still, none dare violate these sanctions, even though reports of some shipments through other countries do surface, largely the sanctions are in place.

As far as Russia offering Pakistan oil at 30 percent discount is concerned, this option is available to any country daring to face the penalties for violating the sanctions. Here, India’s case can be referred to create a context. We saw in the past that India continued to buy crude oil from Iran even after sanctions were imposed. India had entered into a long-time agreement for assured supplies much before these sanctions were imposed. It justified these imports in the context that moving to another source would take time and create acute shortages in the country. Moreover, under long-term deals, the defaulting country must pay a penalty for violating the agreement. So, all such agreements remained out of scrutiny. That enabled India to buy petrol from Iran. In Pakistan’s case, the gas pipeline project had not started on Pakistani soil when Iran was brought under sanctions.

Indians are smarter in trade deals than their Pakistani counterparts. They are trading with Russia as well even during the sanctions. Russian importers are reaching out to small Indian businesses to secure fresh produce, auto parts, medical devices and other key goods that are growing scarce due to international sanctions, people familiar with the matter in both Russia and India say. Private sector players in Russia have met potential suppliers in India’s large cities and are opening specialised bank accounts at home for rouble-to-rupee transactions, with the tacit blessing of the two governments. As the Ukraine conflict drags on and sanctions tighten around Russia’s economy, the stakes have risen both for Russian businesses needing overseas goods and for big global companies wanting to avoid those businesses, lest they run afoul of sanction rules. Governments in Pakistan would not dare to be involved in such dealings. The Indian government can because it is a big economy, and its tacit support cannot be established as easily.

India is one of the most prominent world economies to continue trade with Russia, which has put the spotlight on small and medium enterprises (SMEs) as a potential trade route which, while limited in size, could go under the sanctions radar. These SMEs have no business with countries that have imposed sanctions against Russia. So, it does not matter if dealings with Russia are exposed. They would be blacklisted but it would not hurt their business.

Large Indian conglomerates having exposure to the West will not trade with Russian companies. But SMEs can export and settle payments through banks that are not under the Western sanction regime. As far as Pakistan is concerned, there is no documentary evidence that Russia offered to supply it oil at a 30 percent discount. A former federal minister might have requested such a concession. But did the Russians agree? Why did this not make front page news?

The writer is a senior staff reporter at The News

The not-so mysterious Russian option