In a significant move to ease its financial strain, Pakistan has reached an agreement with the Saudi Fund for Development to defer a $1.2 billion payment for oil imports, extending the repayment period by one year. Prime Minister Shehbaz Sharif’s office hailed the deal as a step towards strengthening Pakistan’s economic stability, ensuring a steady supply of petroleum products while alleviating immediate fiscal pressures.
Pakistan’s economic situation has been precarious since 2022, grappling with high inflation, a mounting debt burden, and a severe foreign exchange shortage. At one point, Pakistan faced the threat of default, highlighting the urgent need for foreign financial assistance and measures to manage its rising liabilities.
Amid this backdrop, Pakistan has sought to diversify its oil imports. The country had previously set ambitious goals to import cheaper Russian crude, aiming for Russian oil to account for two-thirds of its imports. However, challenges persist, including insufficient foreign currency reserves and technical limitations at refineries and ports, which have hindered the country’s ability to fully embrace Russian oil.
As of recently, Russia has become Pakistan’s newest oil supplier, offering discounted Urals crude after facing Western sanctions. In a notable shift, Pakistan paid for its first Russian crude shipment in Chinese currency, as Russia now accepts only Chinese and Emirati currencies for energy transactions, following its exclusion from the US dollar-based global payment system due to the ongoing Ukraine war sanctions.
The transportation costs for Russian crude are significantly higher for Pakistan, not just due to the longer distances but also because of limitations at its ports, which cannot accommodate the large vessels used for these shipments. Despite these challenges, Pakistan’s refineries find Russian crude more cost-effective, priced around $10-$11 per barrel cheaper than the Saudi Arab Light crude, which remains the preferred option for many global markets.
The Saudi deferral on oil payments offers Pakistan much-needed breathing room as the country navigates a complex web of economic challenges. However, balancing relationships with oil-producing giants like Saudi Arabia and Russia will continue to play a crucial role in stabilizing the nation’s energy supply and fiscal outlook.
Deferred Payment Picture by EpicTop10.com on Flickr
