Russian oil imports are hindered by port, refinery, and currency issues

Picture source - Reuters
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Despite competitive costs, Pakistan is unlikely to reach its goal of importing two-thirds of its oil from Russia due to constraints at its ports and refineries as well as a lack of foreign money, according to officials and analysts.

Being short on cash, South Asia became Russia’s newest consumer, buying discounted oil that was previously unavailable on European markets due to Russia’s conflict with Ukraine. Its first shipment came in June, and talks are currently taking place for a second.

In contrast to the 154,000 bpd of petroleum it imported overall in 2022, it is aiming to import 100,000 bpd from Russia in the hopes that this will reduce its import bill, address a foreign exchange problem, and contain record-breaking inflation.

However, the advantages are outweighed by higher shipping costs and fuels of inferior quality than those made using oil from Pakistan’s primary suppliers, Saudi Arabia and the United Arab Emirates.

According to Shahbaz Ashraf, chief investment officer at Pakistan-based FRIM Ventures, Pakistan will need to purchase more gasoline and gasoil to make up for the reduced output of these fuels from the Russian crude. This will put additional strain on its crisis-hit economy and result in more dollar outflows.

A lack of Chinese yuan currency to pay for Russian crude presents another challenge because it requires the yuan for commerce with China, its biggest trading partner, even if Islamabad and Moscow have not shared pricing information and the level of discounts.

The difficulties are made worse by the fact that transportation costs for Russian oil are higher than for Middle Eastern crudes due to both the greater distance traveled and the inability of Pakistan’s ports to handle the large ships leaving Russia.

Government officials noted that, in contrast to direct imports from the Middle East, Urals crude had to be lighted from a supertanker onto smaller ships in Oman before sailing to Pakistan.

According to Viktor Katona, chief crude analyst at Kpler, importing Russian oil was still worthwhile even with the additional expense because lightering processes add about $2 to $3 per barrel to the price of Saudi Arabian Light crude for Pakistani refiners, which is $10 to $11 more expensive than Urals.