EDITORIAL: A Business Recorder exclusive notes that the Shehbaz Sharif-led government has begun to consider procuring Russian oil and gas on offer at much cheaper rates than currently available in the international market.
Pakistan state-owned LNG Ltd, (PLL), received only one bid, in response to its latest spot tender from Qatar Energy Trading, at 39.8 dollars per mmbtu for 30-31 July delivery and though reports indicate that the decision to accept this extremely high bid has yet to be taken yet it may be economically unfeasible given the country’s dangerously low foreign exchange reserves of 10.2 billion dollars (including the 2.3 billion dollars credited by the Chinese consortium on 25 June as tweeted by Finance Minister Miftah Ismail) are barely enough to meet one-and-a-half months of imports at today’s prices.
The international prices are high because of the ongoing Russia-Ukraine war, the subsequent sanctions imposed on Russian oil and gas by the West and the European Union, a major buyer of Russian oil and gas, deciding early this month to prohibit the purchase, import or transfer of crude oil and gas from Russia (with the phasing out of Russian oil to take 6 months for crude and 8 months for refined petroleum products) while seeking other sources of fuel that has ratcheted up the price of fuel that is simply not economically feasible for a cash-strapped country like Pakistan.
Till now the US has merely sanctioned Russian oligarchs and their properties held within their territories while pressurising countries not to purchase Russian oil and gas, particularly major buyers China and India. However, on 19 May, US Treasury Secretary Janet Yellen during discussions with G7 leaders stated that the US had begun to consider imposing secondary sanctions on third parties who continue to purchase Russian oil/gas — third parties who would face being cut off from the international financial system.
And needless to add, if and when these secondary sanctions are imposed, anyone (or country) operating in the energy supply chain would need to assess the risks associated with the secondary sanctions policy.
While to date the secondary sanctions remain a risk as they have yet to be endorsed by the US government, with China and India as the two nations most likely to be affected, yet the question is whether the US would allow a country in dire economic straits like Pakistan an exemption from purchasing Russian oil or gas, be it one or two times or till the global oil and gas market stabilises? This appears unlikely as in Pakistan’s case exceptions have been limited to times of US’ direct or indirect adventurism in Afghanistan which at present is not within its geopolitical considerations.
It is doubtful if China and India will continue to purchase cheap oil and gas from Russia if the secondary sanctions are imposed by the US as the savings from the purchase would be more than offset by the losses due to the sanctions.
One would hope that the Pakistan government carefully evaluates the actual cost of Russian oil and gas in terms of our foreign exchange reserves as well as the possible reprisals by the US which may range from cutting Pakistan off the SWIFT system which would dry up remittance inflows from official channels as well as Pakistan’s exports to the US and, given considerable US influence on multilaterals like the International Monetary Fund and Financial Action Task Force, may be a lot more costly than the savings from buying Russian oil and gas.
Copyright Business Recorder, 2022
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