Russian oil prospects

The recent progress in Russia-Pakistan oil import talks can be seen as a breath of fresh air for Pakistan’s long-sought supply needs. Moscow’s energy minister recently went on record to state that Russia could start exporting oil to Pakistan post-March if terms are agreed, complimenting Islamabad’s hopes of securing timely, affordable and adequate energy supplies as a starting point.

By virtue of challenges to sufficient strategic storage and connectivity, Pakistan’s oil procurement goal is not to strike a surplus, or offset market demand. In fact, the gradual advancement in oil trade talks with Russia is chief to plugging shortfalls and preparing against long-term energy shocks. All this underlines the value of settling payments in “friendly” non-dollar currencies, as teams deliberate specifics. The emergence of a more realistic and achievable oil export timeline between Pakistan and Russia is also valuable groundwork for a more result-yielding process, given how past shortcomings on a credible schedule put oil import ambitions on ice. “As for the supply of crude oil and petroleum products, we have conceptually agreed on the development and signing of an agreement that will determine and resolve all issues of logistics, insurance, payment, volumes,” said Russian Energy Minister Nikolay Shulginov.

The fact that negotiations are still ongoing means there is an urgent need for strong political ownership within Pakistan. Islamabad’s demonstrated constraints on storage, transportation of oil supplies, and crude processing point to a lengthy process of plugging these gaps, before any Russian supplies can be passed on to key manufacturing and consumption hubs. The ruling PDM coalition is constrained in its ability to own and deliver on that multi-phased supply process all by itself – considering the best case scenario of governing Pakistan for less than a year. This matters in the context of Russia-Pakistan oil negotiations. The deal’s key features could demand diplomatic energies spread across many years, even if the post-March supply prospects materialise.

Islamabad can also enlist the support of Beijing to streamline an alternative payment mechanism with Moscow, given that a pivot towards “friendly” non-dollar currencies is high on the agenda of Moscow, Beijing and other partners in the region. Nations that are actively advancing record oil procurements in alternative currencies are better positioned to inform Islamabad’s options in the long-run. Especially when Beijing is well-aware of Pakistan’s foreign reserve constraints and committed against adverse exposure.

From a domestic standpoint, this puts the onus on all political parties to prevent any post-March oil supply breakthrough from being used as a victory narrative for political point-scoring. History is a valuable guide: needless allegations against the former government’s energy procurement talks with Moscow reflected badly on the current coalition’s own procurement prospects, making it clear that any meaningful headway needs to be advanced and owned in the spirit of national interest.

To the contrary, continuous political frictions risk adversely affecting Islamabad’s position of relative strength in talks with Russia. Pakistan has provided an apt reading of its urgent supply needs, its preference for discounted oil, and openness to payment that is suited to Russia’s alternative currency engagements with other regional countries. More anticipated pressures on Pakistan’s foreign reserves, and limited options to diversify away from core Russian supplies makes a united domestic front all the more imperative. It is estimated that about 35 per cent of Pakistan’s total crude oil requirement needs to be met. That pursuit should be driven by the appearance of credible, consistent and reliable negotiations with a top global energy supplier, as opposed to a patchwork approach.

Interestingly, if the post-March timeline materialises, Islamabad’s immediate imperative must be to incentivise commercial sector support to facilitate supplies where crude oil requirement needs urgent fulfilling. Past hiccups on targeted supplies and commercial sector engagement suggest a need to take government and private sector energy enterprises on board ahead of time. Focus here is also essential to managing Islamabad’s delicate price support for fuel to common Pakistanis, and charting ways to negotiate stringent International Monetary Fund (IMF) conditionalities that keep price relief at bay.

It is a fact that even if key conditions in Russia-Pakistan oil trade are agreed, post-March supplies will not guarantee an immediate supply lift to households and manufacturing hubs in Pakistan. There is a buffer time between the release of supplies from Russia and its actual utilisation, making it imperative to select major supply lines and refineries that best serve Islamabad’s near-term interests. Islamabad also needs to identify priority sectors ahead of time, and enlist commercial support to advance a process of building capacities to offset future supply risks. All on a phase-by-phase basis.

These logistical handlings notwithstanding, the very prospect of future oil supplies from Russia should be seen as a step in the right direction, and an opening to engage with major Russian gas companies directly.

“We have decided that it would be a good idea for Pakistan to approach Gazprom and Novatek, two largest LNG producing companies in late 2023 to discuss the conditions when they have spare capacities,” said Shulginov.

Diplomatic traction between high-level delegations gives way to such delicate commercial engagements with Russian gas giants too. To that end, building on outstanding negotiation items is central to when and how Pakistan will benefit from a landmark oil import arrangement with Moscow.

The writer is a foreign affairs commentator and recipient of the Fulbright Award