- Pakistan faces challenges in balancing its energy needs, diplomatic ties and external pressures
Global conflicts have a direct bearing on international oil price movements. As if the Russia-Ukraine war was not enough, the oil market has now been embroiled in a Middle Eastern crisis (Iran-Israel standoff) which may bring international oil prices to over $100 a barrel. This does not have a good bearing on Pakistan as it may unleash a new round of inflation thus bringing misery for the common people already feeling the heat.
On one hand, Pakistan is trying to have a $1.2 billion tranche approved from the IMF (which comes with strings attached), whereas, on the other, it is trying to seek pledges from friendly countries under the umbrella of SIFC (the Special Investment Facilitation Council), latest being $5 billion committed by Saudi Arabia. But, from what appears on the face of it, it seems that Pakistan has missed the bus or rather has been thrown under the bus by the US administration. Pakistan is holding off on benefitting from Russian oil price caps, unlike other Asian countries, due to supposed pressure from the US.
Despite the US sanctions regime, Asian imports of Russian crude oil hit a 10-month high in March. Higher arrivals of Russian crude in March to the top-importing markets in Asia are set to boost Asian crude imports to 27.5 million barrels per day (bpd) — the highest level in 10 months. The estimated import volumes in March are higher than Asia’s 26.7 million barrels per day imports in February and the 27.2 million barrels per day arrivals in January this year. China remains the top buyer, with its crude imports from Russia approaching 11.8 million barrels per day in March, up from 11.2 million barrels per day in February and 10.4 million barrels per day in January.
The US sanctions could spike oil market prices. While Moscow would benefit from higher market prices, the Biden Administration may find them undesirable, especially in an election year. While the US wants the sanction regime to work, it is also striving to dissuade Kyiv from targeting Russian oil installations behind the scenes, as it may result in a price spike. On the other hand, Russia has asked its oil companies to reduce output and ensure compliance with its reduced Organisation of Oil Producing Countries (OPEC) output quota. Moscow’s decision to cut oil production is likely to push the price of oil to $100 a barrel later this year. So, given the shaky market balance, it seems that the US is left with no option other than allowing the ‘shadow fleet’ of Russian tankers to take the crude oil to its Asian customers.
Under pressure
This presents Pakistan with an interesting opportunity. However, unfortunately, under global pressure, Pakistan does not seem to be paying much attention to emerging opportunities. When the then-prime minister visited Moscow in 2022, just when the Russian ‘war on Ukraine’ began, there were discussions about Pakistan importing crude from Russia at a discounted price. However, after a brief pause, the new Pakistan Democratic Movement (PDM) government under Shehbaz Sharif also moved ahead with the project. A few containers of Russian crude were even imported, with some saying it was the advent of a new era but since then, the project has hit snags.
Whether it is cheap Russian crude oil or the Iran-Pakistan gas pipeline, it seems that the US pressure prevails whenever there is an opportunity for Pakistan to come out of the vicious cycle of energy scarcity issues. On one hand, the US does not want Pakistan to improve its relations with countries like Russia or Iran. On the other hand, it is allowing India to continue importing crude oil from Russia. It remains to be seen whether such optics persist even after the US elections in November this year and how the global oil market responds to the recent Middle Eastern crisis.