Russia has said it had reached "conceptual agreements" with Pakistan on the supply of crude oil and petroleum products, noting the two sides also agreed the payments will be made in "currencies of friendly countries," the Voice of America News reported.
According to Gzeromedia, payments might be made through a "friendly" country, presumably China - a power play for Beijing, whose yuan will be used for the transactions, giving the currency more sway as an alternative to the US dollar.
Visiting Russian Energy Minister Nikolay Shulginov made the announcement Friday at a news conference in Islamabad following meetings with his Pakistani counterparts at an annual intergovernmental commission on bilateral trade and economic issues.
"We have already decided to draft an agreement to sort out all the issues that we have with regard to transportation, insurance, payments and volumes. These issues are in the final stage of the agreement," said Shulginov.
"We have already established a timeline of this agreement by the end of March," the Russian minister added. "And we have agreed that the payments will be made in the currencies of friendly countries," he said without elaborating.
Islamabad has been trying to purchase LNG from Moscow, but Shulginov said Friday that Russia couldn't supply the product on short-term deals.
"The LNG volumes in Russia are mostly committed to long-term contracts," he said. "We have decided that it would be a good idea for Pakistan to approach Gazprom and Novatek, [Russia's] two largest LNG-producing companies in late 2023 to discuss the conditions when they have spare capacities."
Oil and energy account for the largest portion of Pakistan's imports and the country is currently facing a severe balance of payments crisis. Islamabad's foreign exchange reserves have lately depleted to about $4.6 billion, barely enough to cover three weeks of imports " mostly for oil.
Gzeromedia questioned, how is this deal going to affect American interests in the region? And why is Pakistan, which wants to balance its ties with Washington, giving business to the Russians perhaps through China?
Although the agreement isn't finalized, it'll be geopolitically novel when it is because Pakistan is an unlikely destination for Russian business. Unlike India, Islamabad and Moscow have had no commercial ties for decades, Gzeromedia said adding: Considering Pakistan spent the Cold War spying on the USSR and/or attacking its troops in Afghanistan (the Soviet Union paid back in kind by arming India, Pakistan's arch-rival), the two sides haven't exactly behaved like partner-material.
Islamabad's energy bills make the biggest chunk of its imports. Cheaper oil from Russia will obviously help its escalating balance of payments crisis and ballooning trade deficit.
But the biggest issue is with dwindling foreign exchange reserves. A year ago, Pakistan had $17 billion in the bank. Today, foreign reserves have dwindled to $4.3 billion, which will pay for less than a month of imports.
To manage the dollar crunch, Pakistan could use the Chinese yuan in a swap with China to pay Russia once the oil flows in (it expects to get 35% of its annual crude oil imports from 70 million barrels of Russian crude), putting its import-regime firmly in the China-Russia camp.
While the Pakistanis defend their position by citing neighboring India as an example of a country that buys Russian oil even as it tilts towards the US and deals with the Gulf states, Islamabad is in a very different position compared to New Delhi because Pakistan is crawling toward default.
But that's exactly how Washington and Beijing might find confluence to stop Pakistan from failing. "The US view on this is that countries like Pakistan may at times be strategically important, but in the great power competition between China and US, it doesn't matter a whole lot," Uzair Younus, director of the Pakistan Initiative at the Atlantic Council told Gzeromedia .
Beyond Pakistan's limited importance as a partner for counterterrorism in Afghanistan, he assesses that the view from Washington is that if others want to share the burden of propping up Pakistan and stabilizing its economy, so be it.
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