Discerning taste in music and is currently studying development economics at UCF
Dated
June 19, 2022
Noor Israr talks about an issue that was not there
It is extremely Russian oil and Pakistan disconcerting to observe that issues that are not grounded in reality have been proffered as matters of national concern defying all logic inherent in statecraft. More disconcerting is the fact that such utterances are accorded intense credibility with a large majority not only believing their content but insisting that their fruition was in national interest. One such issue is the insistence of the former PM that he was close to obtaining highly concessional oil from Russia and that he was not given the chance to obtain such facility for Pakistan. He kept on repeating that India took advantage of Russia’s need for making a quick buck due to its war with Ukraine and bought cheaper ignoring American pressure of sanctions in case such a deal goes through. He went on declaring that cheaper oil from Russia would have considerably lowered the current account deficit faced by Pakistan.
Though the first hitch in this respect would have been the cash-strapped situation faced by the exchequer by Pakistan and unfortunately Russia would not sell its oil on any condition but cash rendering any intention of buying it fruitless. The oft-repeated Indian purchase cannot be compared simply because India obtained huge concessionary deal from Russia by paying cash, a facility that Pakistan seriously lacks. From the geo-strategic angle also, the US looks the other way when India embarks upon deals contrary to American policy of economic sanctions due to it being a larger and crucial economy that cannot be ignored along with India acting as bulwark against China on behalf of the Western alliance led by America. Both these conditions do not apply to Pakistan so raising this bogey out of context is puerile, to say the least.
While pointing the inherent financial and geo-strategic weaknesses of Pakistan it is also essential to debunk efforts aimed at proving that Russian oil is not compatible with technical facilities existing in Pakistan due to its nature. In this context it is imperative to recognise that Russia produces oil coming out of its Ural area and there are four types of oils produced there ESPO, Urals, Sokol, and Sakhalin. Though these types are quite different than each other, but the fact is that they all could be refined for regular use. Pakistan does have the facility to refine ESPO and Sakhalin easily in refineries functioning in Pakistan. It is pointed out in this respect that Russian oil is cost-effective with the additional advantage that obtaining it would reduce Pakistan’s heavy dependence of Middle Eastern oil.
Pakistan currently possesses six operational refineries with a processing capacity of up to 19.4 million tons of crude oil annually but due to several financial and technical issues, the total output of these refineries in the last financial year has been around 11.6 million tons resulting in the fact that only 20 per cent of the local requirement could be met. Actually, the remaining 80 per cent of Pakistan’s requirement is met by importing crude oil and refined products worth $2.22 billion. This amount is hefty to afford and there is hardly any effort visible to go for cheaper oil. Pakistan also suffers from mismanagement of its energy sector along with many structural issues that impede competent handling of this matter. The obvious result is ever-increasing circular debt that keeps on increasing for the government finances.
Currently Pakistan is a net energy importer where oil and energy products make up about 25 per cent of the total import bill. The fluctuation of energy rates thus levies a large influence on the state of the economy and the trade balance. Further ramifications trickle down to inflation, currency, and foreign exchange reserves, etc. Despite tackling the deficits with monetary and fiscal policy actions external pressures are largely at the mercy of commodity prices. The Russia-Ukraine war has brought about a fillip in prices as Crude oil prices have also gone up by about 67 per cent pushing up Pakistan’s import bill to go up from by roughly $8 billion in 2022 to about $20 billion. Even if Pakistan succeeded in shifting 50 per cent of its oil imports to Russia that would reduce current account deficit by 37 per cent from about $17 billion to $11 billion.
Even if such a target is achieved then the country still would require funds to meet its financial requirements and it is here that the relevance of IMF comes that not only provides much needed money but also provides certificate for obtaining funds through other financial institutions. In this context it would be inadvisable to annoy the IMF for some financial advantage that may accrue by switching over to Russian oil but in the longer run it would prove very costly to the country as it will become progressively difficult to obtain new finance without the help rendered by the IMF. TW
Russian oil and Pakistan
ByNoor Israr
Discerning taste in music and is currently studying development economics at UCF
Dated
June 19, 2022
Noor Israr talks about an issue that was not there
It is extremely Russian oil and Pakistan disconcerting to observe that issues that are not grounded in reality have been proffered as matters of national concern defying all logic inherent in statecraft. More disconcerting is the fact that such utterances are accorded intense credibility with a large majority not only believing their content but insisting that their fruition was in national interest. One such issue is the insistence of the former PM that he was close to obtaining highly concessional oil from Russia and that he was not given the chance to obtain such facility for Pakistan. He kept on repeating that India took advantage of Russia’s need for making a quick buck due to its war with Ukraine and bought cheaper ignoring American pressure of sanctions in case such a deal goes through. He went on declaring that cheaper oil from Russia would have considerably lowered the current account deficit faced by Pakistan.
Though the first hitch in this respect would have been the cash-strapped situation faced by the exchequer by Pakistan and unfortunately Russia would not sell its oil on any condition but cash rendering any intention of buying it fruitless. The oft-repeated Indian purchase cannot be compared simply because India obtained huge concessionary deal from Russia by paying cash, a facility that Pakistan seriously lacks. From the geo-strategic angle also, the US looks the other way when India embarks upon deals contrary to American policy of economic sanctions due to it being a larger and crucial economy that cannot be ignored along with India acting as bulwark against China on behalf of the Western alliance led by America. Both these conditions do not apply to Pakistan so raising this bogey out of context is puerile, to say the least.
While pointing the inherent financial and geo-strategic weaknesses of Pakistan it is also essential to debunk efforts aimed at proving that Russian oil is not compatible with technical facilities existing in Pakistan due to its nature. In this context it is imperative to recognise that Russia produces oil coming out of its Ural area and there are four types of oils produced there ESPO, Urals, Sokol, and Sakhalin. Though these types are quite different than each other, but the fact is that they all could be refined for regular use. Pakistan does have the facility to refine ESPO and Sakhalin easily in refineries functioning in Pakistan. It is pointed out in this respect that Russian oil is cost-effective with the additional advantage that obtaining it would reduce Pakistan’s heavy dependence of Middle Eastern oil.
Pakistan currently possesses six operational refineries with a processing capacity of up to 19.4 million tons of crude oil annually but due to several financial and technical issues, the total output of these refineries in the last financial year has been around 11.6 million tons resulting in the fact that only 20 per cent of the local requirement could be met. Actually, the remaining 80 per cent of Pakistan’s requirement is met by importing crude oil and refined products worth $2.22 billion. This amount is hefty to afford and there is hardly any effort visible to go for cheaper oil. Pakistan also suffers from mismanagement of its energy sector along with many structural issues that impede competent handling of this matter. The obvious result is ever-increasing circular debt that keeps on increasing for the government finances.
Currently Pakistan is a net energy importer where oil and energy products make up about 25 per cent of the total import bill. The fluctuation of energy rates thus levies a large influence on the state of the economy and the trade balance. Further ramifications trickle down to inflation, currency, and foreign exchange reserves, etc. Despite tackling the deficits with monetary and fiscal policy actions external pressures are largely at the mercy of commodity prices. The Russia-Ukraine war has brought about a fillip in prices as Crude oil prices have also gone up by about 67 per cent pushing up Pakistan’s import bill to go up from by roughly $8 billion in 2022 to about $20 billion. Even if Pakistan succeeded in shifting 50 per cent of its oil imports to Russia that would reduce current account deficit by 37 per cent from about $17 billion to $11 billion.
Even if such a target is achieved then the country still would require funds to meet its financial requirements and it is here that the relevance of IMF comes that not only provides much needed money but also provides certificate for obtaining funds through other financial institutions. In this context it would be inadvisable to annoy the IMF for some financial advantage that may accrue by switching over to Russian oil but in the longer run it would prove very costly to the country as it will become progressively difficult to obtain new finance without the help rendered by the IMF. TW
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