Pakistan is ignoring the common sense choice

It would be a simple common-sense call for the Pakistan government, to explore the possibility of buying cheap Russian oil. After all, the dollar has climbed to unprecedented heights and Pakistan's import bill for oil rushes ahead. Then why this suicidal misstep?  

After all, when Pakistan's new government takes the decision to suddenly take away all subsidies from oil, gas and electricity with a downstream effect of price rises in all commodities including food, wouldn’t it be only obvious to look for cheap crude oil in the international market?

Other countries have opted to continue with subsidies on oil products due to the fear of social upheaval, but the PML-N led coalition government believes otherwise. It believes that following IMF’s recommendations of either taking away massive subsidies on oil or demonstrating to the IMF that the subsidies are budgeted for, will help Pakistan tide through this growing acute financial crisis.

In the current financial crisis, petroleum costs lie at the heart of everything. The country is a net energy importer where oil and energy products make up about 25 per cent of the total import bill. The fluctuation of energy rates thus levies a large influence on the state of the economy and the trade balance. Further ramifications trickle down to inflation, currency, foreign exchange reserves etc. Pakistan's official document, the Economic Survey clearly illustrates this point . According to the recently released Economic Survey, Pakistan's import bill of oil has increased by 95.9 percent!  In July-April Financial Year (FY) 2022, the import bill of oil rose to $17.03 billion compared to $8.69 billion during the same period last year. For Pakistan, the price rise in oil has been caused by increased prices of oil in the international market in the post-Ukraine war period and the substantial depreciation of the Pakistani rupee.

Against this difficult backdrop in which Pakistan has had to bear a staggering burden on its already scarce financial resources leading to a worsening balance of payment situation, any option to procure cheaper petroleum goods would have been a no-brainer.

When crude oil prices go sky rocketing, whether because IMF demands must be met by Pakistan which is seeking IMF funds or because of the fallout of the Ukraine war, any government as terribly cash-strapped as Pakistan’s would opt to explore the possibility of procuring oil at less than 30 percent of the market price.

Nevertheless, Pakistan's decision makers have defied basic common sense. Without astutely and competently exploring the Russian oil import option, it has repeatedly talked of no response from Russia as a reason to not proceed with the Russian option.

But around mid-March after Russia faced western pressures, it was interested in selling oil to Pakistan among other countries. Pakistan’s ambassador in Moscow had conveyed that to Islamabad and Hammad Azhar wrote the letter as an expression of Pakistan's interest.

Shunning all pressure, India has increased its oil imports from Russia, which rose from 100,000 barrels per day in February to 870,000 a day in May.

Nasim Zehra

The matter proceeded far enough for then PM Imran Khan to receive a presentation from PSO officials on the transaction structure that could likely be used for purchasing Russian oil.

The matter of finances is not that formidable. For example, regarding cash flow, Pakistan opted for spot buying in April and May, and bought about 5-6 shipments of oil in each month on cash payment. On currency issues, countries like the Netherlands have bought Russian oil in Russian currency rubles. Once Pakistan expresses interest, Moscow would likely be flexible on the terms of sale.  As for the matching of Russian crude oil and Pakistan's refinery capabilities, Pakistan can purchase Russian oil and swap in the market.

But perhaps it is the pressure from the US and by extension from the IMF, that has discouraged Pakistan’s present government from engaging Russia on the oil issue.

Against deteriorating US-Russian relations and the Russian invasion of Ukraine, Pakistan-Russia ties have been on the US radar. For example, US National Security Advisor had called his Pakistani counterpart to dissuade the former Prime Minister Imran Khan from undertaking his end February pre-planned trip to Russia. Western diplomats were insisting that Pakistan not speak with one voice on foreign policy, especially the Pakistani PM’s Russia visit.

Subsequently, the early March cable from Pakistan's ambassador in the US confirmed that the Biden administration had insisted that Pakistan's growing Russia relations had irked the US.

Beyond this pressure on Pakistan to keep away from Russia, the US supported by UK have also tried to pressurize other countries to not buy Russian oil and gas. However, few countries have succumbed to US pressure.

Shunning all pressure, India has increased its oil imports from Russia, which rose from 100,000 barrels per day in February to 370,000 a day in April to 870,000 a day in May.

Countries have stood steadfast by what serves their national interests. Clearly, Pakistan's current government has opted to ‘stay safe’ and away from western pressure on Russia. The latest word from the Prime Minister on Russian oil was that the Russians hadn’t responded to former Energy Minister Hammad Azhar’s March 30 letter. 

Pakistan's decision-making seems devoid of political statesmanship and has floundered between confusion and fear.

— Nasim Zehra is an author, analyst and national security expert. 

Twitter: @NasimZehra