Pakistan has signed an agreement with the Saudi Fund for Development to defer a $1.2 billion payment on the country’s oil imports by one year, the office of Pakistan’s prime minister said on Monday. “This project will strengthen Pakistan’s economic resilience by securing a stable supply of petroleum products while reducing immediate fiscal burdens,” Prime Minister Shehbaz Sharif’s office said when welcoming the signing of the oil import financing facility.

Pakistan has been experiencing an economic crisis since 2022, characterized by high inflation, high debt, job cuts, and a struggling fiscal position. At some point the country was facing a severe shortage of foreign exchange reserves and risked defaulting on its debt obligations. Three years ago, Pakistan set a target for cheap Russian crude to make up two-thirds of its oil imports, but has been unable to achieve it hampered by a shortage of foreign currency and limitations at its refineries and ports. The cash-strapped South Asian nation became Russia’s latest customer after Russia started offering discounted urals following sanctions by the west.

Previously, Pakistan’s petroleum minister Musadik Malik revealed that the country paid for its first imports of Russian crude in Chinese currency. According to Malik, the purchase, the first government-to-government (G2G) deal between Pakistan and Russia, consisted of 100,000 tonnes of crude. The decision to pay in Chinese currency instead of the traditional U.S. dollar comes after Russia said it will no longer accept the American currency as payment for its energy commodities but will instead switch to Chinese and Emirati currencies. Further, Russia was cut off from the US dollar-dominated global payments systems following sweeping sanctions off the Ukraine war.

Adding to the challenges, Pakistan pays significantly higher transport fees for Russian crude not only because of the longer distance traveled, but also because its ports are unable to handle the large vessels departing Russia. Still, Pakistan prefers Russian crude to oil from Saudi Arabia because Saudi Arab Light crude is $10 to $11 per barrel more expensive for Pakistani refiners than Urals.

By Alex Kimani for Oilprice.com

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