Russia is reluctant to enter into a long-term oil export trade deal with Pakistan with a price ceiling of $60 a barrel, officials say.
The European Union and the United States agreed in December 2022 to impose a $60-a-barrel price cap on Russian crude supplies in a bid to pressure Moscow and choke off revenue streams due to the war in Ukraine. The cap was also intended to ensure continuous supplies and avoid a possible shortage of fuel on world markets.
Washington has given its consent to Pakistan’s oil deal with Russia while staying within the price ceiling. However, Moscow rejected the price cap.
Pakistan’s government had decided in October to negotiate a long-term oil supply pact with Russia within the price ceiling. He wants Russia to set the price of free on board at $60 a barrel. Free on board means the actual price charged at the port.
design: Ibrahim Yahya
However, Pakistan abandoned plans for a government-to-government contract and instead allowed Pakistan Refinery Limited (PRL) to enter into a crude purchase agreement on a commercial basis.
Following this, PRL entered into a long-term contract with plans to bring the first cargo in December this year.
PRL had been designated as the procuring entity as per the commitments made at the Pakistan-Russia Intergovernmental Committee meeting in January 2023.
PRL will purchase crude oil from Russia in accordance with commercial terms as agreed from time to time without prejudice to Pakistan’s international commitments and the international framework governing such transactions.
The refinery has already imported 100,000 tons of Russian Urals crude and processed it successfully. He also made a profit from this transaction. The oil was loaded at a Russian port and unloaded at an Omani port on two small tankers for onward delivery to the port of Karachi.
Although PRL, on the sidelines of the Russian Energy Forum in October this year, signed a long-term agreement with its Russian counterpart to supply crude oil with mutually agreed specifications, during trade negotiations, the Russian side did not show its willingness to enter into long-term contracts at the price ceiling.
In a bid to break the deadlock, a Russian delegation is set to arrive on Tuesday (today) to meet key Pakistani officials.
Sources pointed out that Pakistan could not agree to a deal that would breach the price ceiling, which could trigger US sanctions.
Reading: PRL signs long-term oil supply agreement with Russia
Earlier, Russia sent a cargo of 100,000 tonnes of crude oil which took a month to reach Pakistan. Transportation costs are also borne by the Russian side.
However, “if Russia does not pay transit fees on future cargoes, a deal may be unlikely,” one official noted.
Experts say Pakistan can benefit from Russian crude if it imports regularly.
The above slow cargo was transferred on a trial basis, which PRL processed at a cost cheaper by $7 per barrel.
Russian crude is said to produce 32% high speed diesel (HSD) and 50% furnace oil compared to Saudi light crude which produces 45% HSD and 25% furnace oil.
Initially, PRL blended 50% Russian oil with the same amount of Arabian Light imported from the Gulf market. Later, he blended 35% Russian crude with 65% Arabian oil which produced a low amount of furnace oil.
Until now, Pakistan relies on the Middle East market for its oil needs, but the import of Russian oil has opened a new avenue, which will diversify the markets.
Meanwhile, PRL has awarded a contract to contractors to start work on doubling its production capacity from the current 50,000 barrels per day (bpd) to 100,000 bpd. With the expansion of the refinery there will be possibilities for significant imports from Russia as well.
Published in The Express Tribune, November 28u2023.
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