Pakistan, a country in Southwest Asia, recently concluded an energy agreement with Russia, claiming the need to diversify its energy supplies. The agreement was signed in April this year after a Russian delegation arrived in Islamabad for the countries to agree on the details of the deal. The first shipment arrived in Asia about a month and a half later. In June, Russia exported about 740,000 barrels of oil to southern Pakistan during two test shipments. Pakistan’s then-prime minister, Shehbaz Sharif, described the arrival of oil supplies from Moscow as a “transformation day” for the country. He wrote on the social network X: “I have fulfilled another of my promises to the nation. This is the first-ever Russian oil cargo to Pakistan and the beginning of a new relationship between Pakistan and the Russian Federation.”
The fact is that Pakistan’s energy needs are growing. Data from 2019 shows that the country was only able to produce 20% of the country’s total needs for oil consumption. This was roughly 4.3 million metric tons. Islamabad met the remaining 80% with foreign imports. The energy deal with Russia may thus open up new opportunities for the country. Moreover, Moscow, which is struggling with economic sanctions imposed by the West over Russia’s invasion of Ukraine, was to provide Islamabad with oil supplies at a discounted price. There is talk of around 60 dollars per barrel. Western countries set such a price ceiling in an attempt to deprive Russia of funds during the ongoing war on Ukrainian territory. Meanwhile, the average price per barrel on the international market in June this year was around USD 74 in June this year.
However, Pakistan has recently been plagued by an economic crisis, as a result of which the country, dependent on foreign supplies, does not have enough foreign currency to pay for fuel imports. The government in Islamabad needs about $18 billion a year to cover energy and fuel supplies. The state bank had less than 4 billion US dollars available in June, barely enough to cover monthly expenses. Musadik Malik, Pakistan’s oil minister, promised that with the supply of Russian oil, prices at the country’s gas stations would also fall. “If we start getting one-third of our crude oil from Russia, then there will be a big difference in prices, and its effect will reach people’s pockets.”
But the experts are not as optimistic as the political leaders. The most significant obstacle seems to be the technical capacity of Pakistan’s refineries. Pakistan imports oil and gas mainly from Arab countries, and the technical infrastructure for oil processing is adapted to such needs. However, it seems that the country will not have sufficient technical capacity to refine Russian crude oil, which is heavy, unlike the light crude imported from the Gulf. The pipe networks of Pakistan’s refineries are not adjusted to this type of crude. An experiment in which Pakistan tried to blend heavy Russian crude with Arab light crude failed. The country will, therefore, have to invest in building new refineries capable of processing heavy crude or converting existing refineries to process the crude coming from Moscow.
Western countries view Pakistan’s actions with suspicion. The energy deal with Russia comes at a time when Pakistan also appears to be strengthening relations with the West. Islamabad has recently received a package of money from the International Monetary Fund. It has sought loans from the World Bank, the Asian Development Bank and other regional and global financial bodies. Such financial aid for economically devastated Pakistan would not have been possible without the support of the West, especially the United States of America. After the events in Afghanistan in 2021, when the radical Taliban came back to power, the US Government established closer cooperation with the government in Pakistan in the areas of health, clean energy, trade and investment. Washington maintains its status as one of the largest foreign investors in Pakistan. The Biden administration has also delivered a substantial humanitarian aid package following the devastating floods that hit the country last year.
However, the rapidly changing geopolitical situation has forced Islamabad to look further east. After war broke out in Ukraine, Pakistan quickly lost a vital trading partner. In the 2021-2022 period, trade between Pakistan and Ukraine fell to $39.4 million. A year earlier, this amount was estimated at nearly $760 million. The war has also affected defence cooperation, including the joint production of Al-Khalid tanks. Thus, Moscow has become a new potential key partner for Pakistan in Central Asia and the Middle East. The adverse effects of the war, combined with the global rise in oil, gas and food prices, have forced Pakistan to deepen its cooperation with Moscow. Islamabad has started importing grain from Russia, which it used to buy from Ukraine, and is also focusing on energy cooperation.
Pakistan is thus oscillating between strengthening its relations with the West and establishing cooperation with Russia. On the issue of Ukraine, Pakistan is trying to remain neutral and has not yet clearly sided with Ukraine or Russia. The government in Pakistan is well aware that it may lose an essential partner by choosing one side or the other. “The US would never be happy if we get closer to Russia or carry out trade with Moscow. But we must prefer our national interests instead of paying any heed to US pressure,” explained an expert from the International Islamic University in Islamabad. However, Washington may use the option of indirect sanctions to discourage Pakistan from cooperating with Russia. Despite the Kremlin’s promises of long-term cooperation with Pakistan, experts agree that the country is now facing bankruptcy, and only Western investors can save it. Whether the government in Islamabad will remain a loyal ally of the West or choose to align with Russia is unclear. For the time being, however, Pakistan is skating on thin ice and is facing a huge dilemma that could affect its domestic and foreign policy for a long time to come.
This brief is supported by
NATO’s Public Diplomacy Division