Pakistan Pays for First Shipment of Russian Oil in Chinese Currency

The payment in non-US dollar denominated currency helps alleviate Pakistan’s balance of payments crisis and furthers the broader trend of de-dollarization in developing nations.

Pakistan paid for its first imports of discounted Russian crude oil in Chinese currency, Reuters reported on 13 June, marking a significant shift in the south Asian country’s policy of paying for exports in US dollars.

The first shipment of Russian oil arrived yesterday, 12  June, and was offloaded at the port in the southern city of Karachi.

Pakistan Petroleum Minister Musadik Malik said the government-to-government (G2G) purchase of Russian oil consisted of 100,000 tons and that the “payment (was) made in RMB.”

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Pakistan’s purchase takes advantage of new opportunities arising from the war between Russia and Ukraine. Due to western sanctions, Moscow lost its European markets for oil and natural gas exports and has instead redirected its sales toward other nations, notably India and China.

Large quantities of oil paid for in non-US denominated currency and at reduced prices comes at a crucial time for Pakistan, which suffers from a balance of payments problem that risks the country defaulting on its external debt. The Pakistan central bank’s foreign exchange reserves are currently only sufficient to cover a month of controlled imports.

Energy imports make up the majority of Pakistan’s external payments.

Pakistan currently imports most of its oil from Saudi Arabia and UAE and pays in US dollars. However, the petroleum minister noted that moving forward, “We’re looking to target one-third of our total oil imports at the Russian crude,” roughly 100,000 barrels per day.

When the first shipment of Russian oil arrived on 12 June, Prime Minister Shehbaz Sharif announced that this was the beginning of a “new relationship between Pakistan and the Russian Federation.”

“Today is a transformative day. We are moving one step at a time toward prosperity, economic growth, energy security, and affordability. I commend all those who remained part of this national endeavor and contributed to translating the promise of Russian oil import into reality,” the prime minister added.

Earlier this month, Pakistan announced a barter trade agreement with Russia, Iran, and Afghanistan in an attempt to ease the mounting pressure on its already depleted foreign reserves.

The barter mechanism allows crude oil, liquefied natural gas (LNG), liquefied petroleum gas (LPG), wheat, iron, and steel to be imported from Russia, while coal, crude oil, LNG, and LPG, and fruits, nuts, and vegetables will be allowed to be imported from Iran.

Pakistan is establishing closer relations with Russia despite its status as a long-standing US ally. In the 1980s, during the Soviet occupation of Afghanistan, Pakistan provided strategic depth for CIA-sponsored Islamic militants, known as mujahideen, to attack Soviet forces. Pakistan’s intelligence agency, ISI, worked on the CIA’s behalf to establish, fund, and arm mujahideen groups as part of a policy to bleed the Soviet army.

Although Russia and Pakistan were adversaries during the Cold War, both countries have shown a willingness to move past historical differences.

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Russian Foreign Minister Sergei Lavrov released a video statement today emphasizing the desire to expand collaboration with Pakistan.

“We are aware of the profound interest and respect the Pakistani people hold for Russia and President Vladimir Putin. We greatly appreciate it,” stated the Russian foreign minister in his address.

“Nowadays, our relations are advanced and based on trust. They are founded on the concurrence or proximity of approaches to the key issues of the international agenda. Together with our Pakistani partners, we stand for shaping a more just and democratic multipolar world order,” he added.