Recent ‘conceptual agreements’ between Islamabad and Moscow regarding the expected import of Russian crude oil to Pakistan have been about the only bright spot in the otherwise bleak news surrounding the country’s economic landscape (and, of course, the never-ending political circus as well). Insurance, logistics, total volume, and the depth of any discounts Moscow can offer are just some of the details that have yet to be ironed out.
The joint statement issued after Russian Energy Minister Nikolay Shulginov and his delegation visited Islamabad stated that “consensus on the technical specification [is] achieved, the oil and gas trade transactions will be structured in a way it has mutual benefit for both countries.”
The import of petroleum products has consumed a significant portion of Pakistan’s foreign exchange reserves. With its economy in shambles due to the dollar shortage, a government that can gain cheap access to the Russian oil market could be a lifesaver. Pakistan’s trade deficit and balance of payments crisis have been worsened by the country’s precipitous decline in foreign currency reserves over the past year, from $17 billion to $4.3 billion. Tapping into this massive oil market could help alleviate these problems.
Pakistan currently imports about 70 million barrels of crude oil per year at a cost of over $6.5 billion. Once the deal is finalised, more than 30% of Pakistan’s crude oil needs will be met by Russian exports. Islamabad may be able to reduce its annual oil import bill by as much as a billion dollars due to the $60 per barrel Western restriction on Russian crude oil. This restriction was imposed on Moscow to deprive it of its oil cash flow due to the Ukraine war.
There are other countries besides Pakistan that are taking advantage of this chaos. Moscow needs both foreign currency and new markets for its natural resources because it is the world’s third-largest oil producer and holds about 11 percent of the world’s oil reserves, so this is a win-win for both parties. New Delhi, thanks to its longstanding good relations with Moscow, has been taking full advantage of the discounted Russian oil, while Islamabad is late to the party. Last year, Russia supplied India with about 15% of its total oil imports.
Historically, Pakistan’s strategic ties to the Gulf oil producing economies and its historical alignment with the Western bloc have prevented it from participating in this massive petroleum market. Recent events on both of these fronts, as well as in other parts of the world, must have woken Pakistan up to the need to broaden its network of trading partners and diplomatic allies. For instance, in a rare emergency session last year, 141 of the 193-member United Nations General Assembly (UNGA) adopted a resolution condemning the Russian invasion of Ukraine and demanding that Moscow immediately cease further advancements and withdraw its forces from Ukraine. Some other major countries didn’t vote either, but China, Pakistan, India, and Bangladesh all did.
Pakistan’s ‘neutrality’ in the ongoing crisis stands out in contrast to India’s because the country has always aligned itself with the west, both during the Cold War and the current ‘war on terror. Despite pleas from Western capitals, Pakistan did not participate in the election. Diplomats from 22 countries, including the EU, Canada, the UK, Australia, and Japan, lobbied Pakistan to vote in favour of a resolution condemning Russian aggression against Ukraine on the eve of the UN General Assembly vote.
Pakistan’s National Security Policy has stated categorically that “Pakistan does not subscribe to ‘camp politics,'” which has been a bitter pill for European countries and their allies to swallow. Pakistan’s geo-economic pivot aims to improve trade and economic ties by establishing a transportation corridor from Central Asia to the country’s warm waters. In the policy document, it is stated that “Pakistan is committed to reimagining its partnership with Russia in energy, defence cooperation, and investment” due to the importance of the relationship between Moscow and Islamabad. Pakistan is committed to further strengthening the relationship for the benefit of both countries.
Russia is at a geographical disadvantage
Saved from being a much weaker power only because of its oil and gas,” writes renowned British journalist Tim Marshall in his best-selling book “Prisoners of Geography: Ten Maps That Tell You Everything You Need to Know About Global Politics.” So it’s no surprise that Peter the Great instructed his descendants to “approach as near as possible to Constantinople and India” in his will written in 1725. whoever rules over that region will be the de facto global ruler.
In many respects, Russia stands apart from other countries. Read on for some information you might find intriguing. Russia has the largest landmass of any country at 17,098,242 square kilometres. It has a land area roughly twice as large as that of Canada (9,984,670 square kilometres), the United States (9,833,517 square kilometres), or China (3,498,040 square kilometres) (9,596,960 sq km). The country is 25 times the size of the United Kingdom and five times that of India. It shares a total land border length of 22,407 kilometres with 14 different countries, making it the world’s second-most-bordered country after China (China is the only other country bordering 14 independent countries). It is the ninth most populous country in the world, but its population of only 144 million makes it smaller than Pakistan, Nigeria, or Bangladesh.
Perhaps Tim Marshall is correct in saying that God has been unkind to Russia by creating a difficult geography for the country. The short growing season is a direct result of the region’s harsh climate. The country has a shockingly small amount of irrigated land, only 43,000 square kilometres. About 13% of the land is used for agriculture, just over 7% is arable, and only 1% is used for permanent crops. It is not surprising that Moscow faces a difficult challenge in distributing the country’s agricultural output across its eleven time zones, given the country’s geography and topography. Russia’s natural resources include oil, natural gas, coal, and a variety of strategic minerals, as well as substantial rare earth element reserves; however, the country’s harsh climate, inhospitable terrain, and enormous distances make it difficult to extract these resources.
Pakistan must maintain its neutrality and focus on its own national interests at all costs. The United States remains Pakistan’s largest export destination, despite the importance of broadening our ties and diversifying our economic relations with other countries. UN’s COMTRADE database on international trade shows that Pakistan’s exports to the US were $4.14 billion in 2020, while imports from the US were $2.58 billion. However, during the same period, imports into Pakistan from Russia totaled $613.08 million while exports to Russia totaled $144.54 million.
There is a great opportunity to broaden and deepen our commercial ties with Moscow, but this must not be done at the expense of our relationships with Western nations. Therefore, it would be prudent not to start calling the recent oil talks a “game-changer” just yet. The best strategy moving forward is not to generate unnecessary hype at home and abroad, but rather, to engage in covert diplomacy to advance national interests.