Pakistan Scraps Oil Agreement with Russia
In a significant move, the Pakistani government has veered away from its original plan of establishing a prolonged oil agreement with Russia under a government-to-government (G2G) framework. Instead, a new strategy has been adopted, granting local refineries the authority to engage in direct commercial negotiations with Russian companies.
This strategic shift is a direct response to the delays encountered in setting up a Special Purpose Vehicle (SPV) for the importation of crude oil, a key component of the initial G2G agreement between Pakistan and Russia.
Reportedly, Govt of 🇵🇰🇵🇰 has dropped the idea of G2G Russian oil import deal.
Commercial refineries/OMCs can still import Russian 🇷🇺🇷🇺 oil if they consider it more profitable.
It will be private companies responsibility to trade without violating international sanctions.
— Abdul Rehman (@AbdulRehman0292) October 18, 2023
The Purpose
The primary purpose behind the creation of the SPV was to streamline the import process of Russian crude oil, which would subsequently undergo processing in local refineries. However, a recent visit by a Pakistani delegation to Moscow prompted the decision to suspend the SPV plan due to perceived high risks associated with this approach.
The backdrop to this shift includes the experience of Pakistan Refinery Limited (PRL), which imported a vessel carrying Russian oil, a process that took around one month for the oil to reach Pakistan’s shores. Concerns arose regarding the practicality and efficiency of importing Russian crude through the SPV, especially given the extended duration of the process. Adding to this reconsideration was the private-sector refinery Byco, which imported a substantial 100,000-ton oil consignment from Russia.
Sources reveal that Pakistan’s oil refineries are now actively engaged in direct negotiations with Russian companies for crude oil imports, operating solely on commercial terms. Before the Pakistani delegation’s visit to Russia on October 10, negotiations aimed to secure a long-term oil supply agreement while adhering to a price cap of $60 per barrel.
The decision now is for local refineries to import crude oil from Russia on commercial terms, marking a departure from the earlier government-centric involvement in the process. This strategic pivot signifies Pakistan’s commitment to adapt and optimize its energy partnerships in a dynamic global landscape.