Oily turnaround


A recent visit by a Pakistani delegation to Moscow is seen, on the one hand, as an opportunity for Islamabad to explore options for buying Russian crude oil and to bring a respite to the tight energy market of the country, but, on the other hand, it is feared to sour its relations with the Western nations, who are hell bent to see Russia is defeated in Ukraine. The visit came amid a new set of Western sanctions on Russian crude exports to cripple Moscow’s ability to generate resources to fund its war in Ukraine and a decision by the Organization of Petroleum Exporting Countries (OPEC) to curtail its crude output in order to contain the oscillating oil prices in the face of a global recession, China’s zero Covid-19 policy and escalating military tensions around the world.
The OPEC, and other major oil producers including Russia, has clarified that they would continue to restrict crude output by two million barrels per day, a policy that is due to run through the end of 2023 and that has irked Washington, which has threatened that the OPEC and its leader Saudi would have to face the consequences. However, heedless to the not-so-veiled threat, the group has hinted that it is ready to go ahead its plan and to meet at any time to “address market developments if necessary”.
Upon return, the delegation led by State Minister for Petroleum Musadik Malik announced that Islamabad and Moscow have agreed to enter a long-term agreement for sale of the crude and other POL products at reduced prices under a government-to-government (G2G) arrangement.
Being the 35th largest importer of crude petroleum in the world, agreements to the effect with Russia could lead Pakistan towards stability in energy sector which would definitely reduce pressure on the ailing economy. Presently, Pakistan imports the bulk of its Petroleum, Oil and Lubricants (POL) products from Saudi Arabia, the United Arab Emirates, Oman and South Africa.
In contrast to its traditional policy of looking towards the West for meeting its economic and trade needs, Islamabad framed another policy “Vision East Asia” hot on the heels of the 9/11 incidents in the United States to cultivate extensive economic and strategic relations with the nations of Southeast Asia. However, this policy could not be developed on a strong footing to bolster Islamabad’s standing as a regional power and a counterweight to the influence of neighboring India.
In the geo-political context, Pakistan is strategically located at the crossroads between Central Asia and South Asia, and Southeast Asia and the Middle East, and is ideally in a strong position to bring the four regions closer to each other. Furthermore, Pakistan enjoys the strategic potential to further enhance its diplomatic relations and forge closer trade and investment linkages with the countries in the four regions. In his presser, Musadik Malik announced that a Russian government has invited Pakistan to negotiations from now on making contracts for 2025-26 for LNG procurements from its two under-construction LNG production plants.
To examine the impact of oil prices on Pakistan’s economic growth, statistics on trade openness, oil price, interest rate, and GDP, tackling energy inflation is one of the most pressing issues because it has an impact on a country’s economic growth. If exploited in a sensible way, as put by analysts, the visit is expected to provide a foothold to Islamabad to forge closer trade links with one of the world’s major oil exporters. A long term deal with Russia would be a harbinger for development and controlling the country’s skyrocketing inflation.