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| How will Pakistan benefit from buying Russian crude oil in Chinese currency? |
Minister of State for Petroleum Mossadegh Malik told Reuters last Monday that his government had used Chinese currency to buy crude oil from Russia.
This initiative of the Government of Pakistan is being considered as a major policy decision.
The supply of crude oil at subsidized rates from Russia is being seen as a relief for Pakistan's crisis-ridden economy and inflationary public. Prime Minister Shehbaz Sharif has claimed in his speeches during the last week that Pakistan is getting 15 dollars per barrel of cheap oil from Russia compared to the world market.
Pakistan is currently facing a balance of payments problem and the country is at risk of default due to external debt.
The current situation is that the Central Bank of Pakistan does not have enough foreign exchange reserves to even pay for one month's imports.
It may be noted that the concessional Russian oil agreement between Pakistan and Russia was signed earlier this year and the first consignment reached Karachi last Sunday.
What did Pakistan say about the agreement?
Last Monday, Mossadegh Malik told the Reuters news agency that "the payment was made in Chinese yuan."
He has said that it is a deal of 100,000 tons, of which 45,000 tons have reached Karachi port and the rest is on the way. He also said that this crude oil will be processed in the refinery. The local market will benefit.
Pakistan's dollar-denominated payments to other countries include energy imports.
According to Kepler data, Pakistan imported 154 thousand barrels of oil per day in the year 2022.
He also said that our target is to import one-third of our oil from Russia.
Most of the crude oil in Pakistan was imported from Saudi Arabia and then the UAE, known as Arabian Light Oil.
"We will benefit from this agreement in any case"
Pakistan's Minister of State for Petroleum, Mossadegh Malik, while talking to Geo News program Aaj Shahzeb Khanzada, said that there are eight types of different oil quality in Russia, we are not taking the most light, but this low light. That is, Ural is buying.
"Our refineries are built for light Arabian crude oil, so there is no doubt that we have old technology that was built for refining that oil."
"If we use a little heavy oil, it will increase the amount of black oil or furnace oil. We've taken all the guesswork out. We have also estimated that if the black oil increases, we will not lose money but it will also be beneficial for us.
He further said that 'we had first ordered a sample for its accounting and then after confirmation in this regard, this oil was ordered.
Pakistan Refinery Limited said that they can mix 30 to 35 percent of Russian oil with Arabian Light. Parko said they can use 25 to 30 percent and a private sector company said they can use up to 70 percent.
Mossadegh Malik said that 'One, the price of our furnace oil will increase, which we have put in our accounting model. Second, our transportation cost will increase, so we booked a ship of 100,000 tons which was brought near the port of Pakistan and transferred to two ships of 50, 50 thousand because there is no such port in Pakistan. Where such a ship can land. Similarly, the cost of our insurance has also increased, but still, we have benefited.
Why use Chinese currency?
Mossadegh Malik said that from Pakistan's point of view, it does not matter to us in which currency the agreement is being made. Because we were going to do a deal with China for the first time, the banks were nervous about doing a deal.
"So the bank we paid through had a preference in RMB. We don't mind the dollar either.
Pakistan is not the only country doing business in Chinese currency.
Bangladesh also recently decided to pay in the Chinese currency yuan instead of dollars for a scheme.
He will pay Russia $110 million in Chinese currency for the power plant under construction.
The BRICS group of countries is trying to end the dominance of the dollar and start trading in other currencies.
India also wanted to promote the purchase of Russian crude oil using the rupee. India has tried hard to trade with Russia in rupees but it has not been possible to succeed.
Currently, Russia is the largest supplier of arms and other military equipment to India.
But this supply has now stopped as the US has banned the mechanism through which India pays Russia.
India has to pay two billion dollars to Russia for supplying arms and other military equipment.
But due to the ban, this payment has been delayed for the past year.
India fears that doing so could expose it to US sanctions. On the other hand, Russia is not ready to accept payment in rupees.
Indian banks opened Vostro accounts in Russian banks to buy oil by paying in rupees.
It has no problem with the yuan because Russia is doing business with China continuously.
China, Pakistan, and Russia all benefit
Analyst and journalist Khurram Hussain told BBC that the deal in yuan from Russia is a joint decision of China, Pakistan, and Russia.
According to them, PakIn 2011, Iran first signed a 'Swap Facility' agreement with China. Under this agreement, Pakistan received Chinese yuan in 2013 in exchange for rupees.
According to him, the biggest and immediate benefit of the deal in yuan for Pakistan is that it does not have to pay dollars, which does not reduce the foreign exchange reserves.
According to him, although this deal will reduce the yuan of Pakistan, at this time, Pakistan needs dollar relief.
Atul Bhardwaj, an expert on Chinese affairs, says that the de-dollarization campaign has been started by Russia and China and it will be considered a success. Russia's trade with China has increased so this currency will be used.
"China will not only benefit from trading in the yuan but also from these countries' drive to devalue the dollar."
He said that 'Russia wants to strengthen its relations with Pakistan, just as it wants to improve relations with India, it is beneficial to improve relations with these countries amid the sanctions of Western countries.'
Pakistan's trade with China has increased and it would be expensive for them to buy dollars from the US, if they use the yuan to trade with China, it would also benefit their weak economy.
At the same time, China also benefits from transactions in Chinese currency.
Additional reporting for this piece has been done by BBC Urdu's Azam Khan.