Pakistan to buy cheap oil from Russia, expresses solidarity with Saudis on OPEC+ production cut

Economically weak Pakistan cannot afford to oppose the United States, expert says

Pakistan's national flag flatters during a ceremony to celebrate Pakistan's 75th Independence Day, at the Mausoleum of Muhammad Ali Jinnah in Karachi, Pakistan, August 14, 2022. (photo credit: REUTERS/AKHTAR SOOMRO)
Pakistan's national flag flatters during a ceremony to celebrate Pakistan's 75th Independence Day, at the Mausoleum of Muhammad Ali Jinnah in Karachi, Pakistan, August 14, 2022.
(photo credit: REUTERS/AKHTAR SOOMRO)

Pakistan has informed the United States of its decision to purchase oil from Russia, Pakistan‘s Finance Minister Ishaq Dar announced.

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“If India can purchase oil from Russia, then we also have the right and there is no reason to stop us from doing so,” Dar told reporters on Wednesday in Islamabad at the All Pakistan Chartered Accountants Conference 2022. “We won’t sign a contract with terms that are worse than those of India,” which is the US’ major ally in the region. Dar told reporters that the Pakistan government “has been actively considering the policy of purchasing low-priced oil from Russia, and we have informed the US officials about our intention during a recent meeting in Washington.”

Russia's President Vladimir Putin chairs a meeting on the country's oil and gas industry with representatives of Russian energy companies and officials via a video link at a residence outside Moscow, Russia April 14, 2022. (credit: SPUTNIK/MIKHAIL KLIMENTYEV/KREMLIN VIA REUTERS)Russia's President Vladimir Putin chairs a meeting on the country's oil and gas industry with representatives of Russian energy companies and officials via a video link at a residence outside Moscow, Russia April 14, 2022. (credit: SPUTNIK/MIKHAIL KLIMENTYEV/KREMLIN VIA REUTERS)

The decision to purchase oil from Russia was communicated to Donald Lu, US State Department assistant secretary for the South and Central Asia Bureau; and Ramin Toloui, assistant secretary for the Bureau of Economic and Business Affairs. The following day, Dar told the Pakistani Aaj News television channel that the US said it has “no objection” to the decision.

“We appreciate the concerns of the kingdom of Saudi Arabia for avoiding market volatility and ensuring global economic stability. Pakistan encourages a constructive approach to such issues based on engagement and mutual respect."

Pakistans Ministry of Foreign Affairs

India has become Moscow's second-largest oil buyer after China, which is now purchasing Russian oil at a significant discount. Meanwhile, Pakistan’s Ministry of Foreign Affairs announced last week that, in the wakeof statements made against Saudi Arabia in the context of the OPEC+ decision to significantly cut its output, “Pakistan expresses solidarity with the leadership of the kingdom of Saudi Arabia.”

“We appreciate the concerns of the kingdom of Saudi Arabia for avoiding market volatility and ensuring global economic stability. Pakistan encourages a constructive approach to such issues based on engagement and mutual respect,” the ministry said in a statement.

2 million barrels per day in oil production

OPEC+, the organization of the world's oil-producing countries, earlier this month announced a reduction of 2 million barrels per day in oil production. OPEC+ said that “the decision to cut crude oil production is aimed at keeping oil prices stable as the risk of a global recession has deepened and oil prices have fallen in recentmonths.”

It is the biggest daily cut in crude oil production by OPEC and its allies since 2020. Russia is a member of OPEC+.

The oil producer group noted that its decision stemmed from an uncertain stance for the global economy and the oil market, but US officials immediately labeled the policy as "thoughtless."

European countries buy the most oil from Russia, and Europe is the largest market for Russian oil and gas, but Russian oil sales to Europe fell sharply in 2022, as the companies themselves stopped buying oil from Russia after its invasion of Ukraine in late February. However, Russia has been able to shift its oil exports to Asia, with India and Chinaincreasing their purchases.

Apart from Pakistan, it is also rumored that the Taliban rulers of Afghanistan are likewise interested in buying cheap oil and gas from Russia and Iran. Jazib Mumtaz, a Karachi-based doctoral scholar and senior research economist at thePolicy Research Unit – Federation of Pakistan Chambers of Commerce & Industry (FPCCI), told The Media Line that “Pakistan’s stance of expressing solidarity with Saudi Arabia on the OPEC+ oil cut is more pragmatic as Pakistan has a much larger stake attached to the Saudi kingdom.”

“Pakistan supporting Saudi Arabia at a time when Saudi-US relations are at a low can be considered a well-thought-out strategy to secure future financial needs,” he added. Mumtaz further told The Media Line that “Saudi Arabia’s $3 billion assistance helped Pakistan to secure an International Monetary Fund (IMF) package of $1.2 billion, which averted the possible default. In the current economic scenario, Pakistan’s dependence on the kingdom of Saudi Arabia has further increased due to huge debt obligations that need to be fulfilled by next year.”Mumtaz noted that Pakistan siding with the Saudis against the US is also an indication that the fear of default has not faded away and, for that, “we had to garner the support of our brotherly countries.”

Amer Al Sabaileh, a Jordanian strategic analyst and a nonresident fellow at the Stimson Center in Washington, told The Media Line that “the US should think seriously how they can compensate their allies or the countries that suffer from the high price of oil by giving them incentives, because otherwise this is something that might be usedpolitically by Russia the way it is today.” “We are living in the era of so-called economic pragmatism and this means that pragmatism will push every country to look out for its own needs; so, by all means, findsources. If so, this is a tool that can use gas and oil to reshape global politics,” he also said.Al Sabaileh called the situation in Central Asia and Afghanistan “grave and critical for the US in its confrontation with Russia and China.” For the US, it is important to rebuild strategic relations where allies can concretely benefit economically from its relationships, he added.

Rachel Brooks, a New York-based independent researcher and analyst, told The Media Line that “the United States and its key western allies are undoubtedly concerned about Pakistan's growing diplomatic and trade relations with China and Russia; in the meantime, both are the archrivals of the US.”

Earlier this month, US President Joe Biden said in a public statement that Pakistan is "maybe one of the most dangerous nations in the world" as it has "nuclear weapons without any cohesion.”“In my view, Biden made the statement about Pakistan's nuclear arsenal while considering Russian threats to use low impact tactical nuclear weapons. Biden's statement is too narrowly scrutinized, he stated it in a broad spectrum, keeping the regional situation in view,” Brooks said. Recalling President Biden‘s recent statement about Pakistan, Brooks told The Media Line: “US officials are closely monitoring those countries who are the US allies and at thesame time they are maintaining good relations with the US rivals, so it is obvious that such kinds of statements are not surprising.”

“The US and its allies know well of Pakistan‘s strategic location in the region, so they areworried about Pakistan‘s solidarity with Saudi Arabia and Pakistan’s possible agreementwith Russia. They are also concerned that such a situation will allow Russians tochallenge NATO authority in the world’s most strategic zone,” Brooks said.She noted that “Pakistan is facing the worst political and economic chaos since thecoalition government has taken control. In my view, the Finance Minister's statement tobuy cheap oil from Russia is just a political stunt and in this lowliest economic situation,Pakistan can never afford to oppose the United States,” she said.But, Brooks told The Media Line, “it must be kept in mind that the US interpreted theSaudi - OPEC+ decision as indirect support for Moscow in its war against Ukraine and, insuch a situation, the same policy of the United States is seen for those who supportSaudi Arabia or Russia.”Umer Karim, a leading expert on Pakistan and a visiting fellow at the Royal UnitedServices Institute for Defense and Security Studies in London, told The Media Line thatthe current government in Pakistan assumed office with a resolve to improve thebilateral relationship with the United States. This, he said, “saw Pakistan, relativelydowngrading its engagement with Russia. Pakistan also became silent with regard to theprospects of buying oil and wheat from Russia.”“Initiatives were floated by the former government of Imran Khan, but the statement ofPresident Biden has put the current government in a difficult spot, especially when themost forceful reaction has come from former premier Khan,” Karim further told TheMedia Line.

Khan last week held the existing coalition government responsible for the controversialstatement by the US president about Pakistan’s nuclear arsenal, terming it a failure of the “imported” government’s foreign policy. “Therefore, these government statements should be considered against that backdrop and it is very unlikely that Pakistan will attempt again to court Russia as it can lead to obstacles in the country's dealings with the IMF,” Karim said.

Saddam Hussein, a research economist at the Pakistan Institute of Development Economics (PIDE) in Islamabad, told The Media Line: “The announcement of the purchase of Russian oil by the Finance Minister doesn’t seem to be a knee-jerk reaction to President Biden's recent statement – showing concerns about the security ofPakistan’s nuclear arsenal, rather it is a well-thought-out move against the backdrop of Washington–Riyadh tensions over oil supply as well as considering the regional equation.”

“Islamabad is walking on a tightrope,” Hussein noted. “On one hand, it wants to be inthe emerging regional bloc, where Beijing and Moscow are way closer than before, atleast for now. Both are significant for Pakistan, particularly when they are neighbors. Onthe other hand, it also wants to maintain a close relationship with the US. However, theBiden administration's cold attitude and the controversial statement about Pakistan, ismaking the latter drift away from the former.”“In parallel, the Riyadh and Washington oil episode created space for Islamabad to takea bold stand. This would give a signal to the US that Pakistan is neither alone nordependent on the US. The move would have also been cheered by the Saudigovernment, which is mounting pressure on the US to withdraw from its stance,”Hussein also told The Media Line.Hussein noted that “economically, cheap oil from Russia would cause oil prices to dropdomestically, causing a positive ripple effect across the economy.”He underlined that “comparing it to India is a bit naive as major economies have highstakes there. So, it can take a bold position, while Islamabad has to play its movecautiously, as its economy is already spiraling downward.”

Andrew Korybko, a Moscow-based American political analyst, told The Media Line: “The statement is independent of what Biden said. It’s related to Pakistan’s desperate need for some sort of relief from its worsening economic-financial crisis.” “The US probably wouldn’t have a problem if Pakistan and Russia reached some arrangement on energy because Washington has a stake in the survival of the incumbent authorities. It doesn’t want them to have to resign or lose power some other way if the crisis continues to worsen,” he also said.

Korybko told The Media Line that “Pakistan is also experiencing a serious financial crisis with limited payment means due to a foreign currency shortage. It will be difficult to negotiate a deal that satisfies both sides, whoever they end up buying it from. Deferred payment seems probable.”