Pakistan's case: US ready to allow Russian oil trade

ISLAMABAD: The United States (US) has reportedly showed willingness to allow trade of Russian oil at discounted rates for a specific period, well informed diplomatic sources told Business Recorder.

In case of Pakistan, US Embassy in Islamabad has expressed willingness to meet the officials of Petroleum Division to explain to them the mechanism to cut a short-term cut rate deal for Russian crude oil. Pakistan has already requested a deal with Russia to import wheat and oil at discounted rates.

The new regime, sources said, has conveyed by the US in a demarche to its partners including coalition partners on Russian oil.

The sources said US Embassy has conveyed during a demarche about bans on services related to maritime transportation of Russian crude oil and petroleum products. A coalition of US, the G-7, and the EU will implement a policy to ban a range of maritime services and transportation related to Russian origin crude oil (from December 5, 2022), and petroleum products (from February 5, 2023). However, an important exception to this policy ban is that a jurisdiction may purchase seaborne Russian oil at or below a price cap.

According to demarche, the goal of the price cap is: (i) to keep Russian oil flowing in the global market at lower prices; and (ii) reduce Kremlin’s revenues. In this regard, the main beneficiaries of this lower-price oil will be developing countries in Africa, Asia, and Latin America.

The sources said, as per US, Russia has the choice to either: (i) sell under the price cap and keep Russian oil flowing in the global markers; or (ii) find alternative markets to keep their oil flowing which may not be a reliable choice; or (iii) refuse to sell.

Difficult to imagine buying Russian oil at this time: Miftah Ismail

As per reports, Russia is already trying to secure long-term cut-rate contracts with countries at discounts of 30 percent or more, for their concern over the price cap,” the sources maintained.

The policy intends, sources said, to encourage oil trade, not deter it, including Russian oil at lower prices. In this regard, if importers and refineries want to avail necessary services including insurance, brokering, bunkering etc. from any of the coalition country members, they must purchase the seaborne Russian oil at a price at or below the set price cap. The U.S. and majority of G-7 countries have banned the import of Russian oil and will not be buying oil made available by the price cap.

In terms of compliance a record-keeping and attestation model will be followed by US Treasury’s Office of Financial Asset Control (OFAC) to track whether oil transactions below the price ceiling. OFAC will also advise about red flags for sanctions and price cap evasions to maritime and other relevant departments of the importing entity.

The sources maintained that proposed incentives to developing countries include:(i) buy Russian seaborne crude oil and petroleum products at a lower price;and (ii) address inflation and lower energy costs in their country.

The “price cap” has not yet been decided, and will be set by international consensus with countries that agree to implement the services ban and price cap exception.

The sources further stated that the U.S. side has conveyed that a country may partner with the coalition to cap the price of Russian oil to limit Russia’s revenues. U.S. has conveyed that a country may decide not to join the coalition but still benefit from purchasing the Russian seaborne oil at a lower price set by the coalition.

Ministry of Foreign Affairs, sources said, has also sought some clarifications from the U.S Embassy in Islamabad on this issue. On MoFA’s inquiry whether a long-term cut-rate contract may be established by a country to purchase Russian oil before a price cap has been established, the U.S. side did not appear to have any strict objections on the matter.

The sources said, MOFA has requested Ministry of Energy to facilitate meeting with U.S Embassy officials on this issue and also seek clarification inquiry whether a long-term cut-rate contract may be established by a country to purchase Russian oil before a price cap has been established.

Copyright Business Recorder, 2022