Has Pakistan succeeded in balancing Russia and Ukraine?

In a significant move, Pakistan started importing discounted crude oil from Russia in April. Under a deal struck between Moscow and Islamabad, the first cargo arrived last week.

While bringing economic relief to cash-strapped Pakistan, together with geopolitical benefits, this step may also help Islamabad in its balancing act between Moscow and Kyiv following Russia’s 2022 invasion.

Though it has tried to maintain a neutral position where the Russia-Ukraine conflict is concerned, Islamabad’s so-called “principled stance” poses a challenge as Pakistan and Ukraine have remained defence partners since the late 1990s.

From 1991 to 2020, Ukraine-Pakistan defence contracts were valued at around $1.6 billion, as reported by the Stockholm International Peace Research Institute, an arms control watchdog. According to Jane’s, a leading publication on global defence matters, Pakistan has been a major recipient of Ukraine’s advanced T-80 UD tanks since 1997.

"Pakistan started importing discounted crude oil from Russia in April. Under a deal struck between Moscow and Islamabad, the first cargo arrived last week"

At the same time, Pakistan-Russia bilateral relations have also improved, especially as both countries are permanent members of the China-led Shanghai Cooperation Organization (SCO).

Therefore, even though the Ukrainian conflict has deepened divisions between the US and its allies on one side, and Russia and its partners on the other, Islamabad has tried to remain neutral. It did, for example, express concern over the worsening humanitarian situation in Ukraine but abstained from voting on any resolution against Russia.

Interestingly, reports emerged earlier this year that Pakistan was supplying Ukraine with small arms and ordnance. Pakistan’s Foreign Office denied the claims, saying it maintains a policy of “non-interference in military conflicts”.

Many of the media reports alleged that the ammunition was sent to Ukraine via European countries. While unclear, such reports reflect Islamabad’s dilemma in balancing bilateral ties with both Russia and Ukraine.

Michael Kugelman, South Asia Institute Director at the Wilson Center in Washington, told The New Arab that the decision to import Russian oil could have been intended to better position Islamabad as a neutral player.  

“[Pakistan] reportedly sent small arms to Ukraine, and so importing Russian energy balances the scales. That said, if Pakistan increases the oil it imports from Russia, that growing dependence could increase Moscow’s leverage and prompt it to pressure Islamabad to stop sending small arms to Ukraine,” he said.

As a long-standing Western ally, Islamabad has tried to avoid any direct impact on its ties with Washington. Before finalising the Russian oil deal, Pakistan reportedly consulted with the United States, receiving implicit approval.

So far, things seem to be working out, but it is not clear whether Washington would approve of a long-term arrangement with Russia.

“The US can live with a longer-term arrangement so long as the transactions fall below the West’s price cap and Islamabad pledges to explore options to diversify away from Russia if it can find oil of a similar type at a comparable price elsewhere,” Kugelman noted.  

“Washington’s concern will grow the longer the arrangement goes on, but so long as it doesn’t lead to violations of US sanctions, the US won’t be bothered in a big way. After all, many of its partners in the West, along with India, have imported much more Russian oil, and the US has accepted that.”

For the moment, Pakistan’s economic crisis gives it a good excuse to buy more affordable crude from Russia. As stated by Pakistan’s Finance Minister Ishaq Dar, if neighbouring New Delhi [a US ally and part of the Quad] can buy discounted Russian oil, Islamabad also has the right to explore new possibilities.

But seeing as Russia has been under international sanctions ever since it attacked Ukraine, there will be trouble ahead.

"[Pakistan] reportedly sent small arms to Ukraine, and so importing Russian energy balances the scales"

Zeeshan Shah, a financial analyst at FINRA in Washington, told The New Arab that US sanctions would remain an issue. “Even though the US turned a blind eye to the recent modest test import, I would find it highly unlikely that they would continue to turn a blind eye to significant imports of Russian oil over the long term,” he said.

Furthermore, any serious escalation of attacks between Russia and Ukraine could have an impact on Pakistan’s imports from both countries. The longer the war drags on, the more risks there will be.

“One of the risks of Pakistan importing Russian oil is that an escalation of the war in Ukraine could imperil Pakistan’s energy security. If Pakistan is looking to Russia as a key new oil supplier and Ukraine starts bombing oil cargo shipments at Russian ports, then that’s a big problem for Islamabad,” Kugelman noted.

Earlier this year, a Russian delegation visited Islamabad to finalise technical aspects such as insurance, transportation, and payment mechanisms. As far as Russia is concerned it gains one more oil outlet after India and China, as it redirects supplies from the Western market.

But Shah noted that transport may also become an issue in the long term. “In which case tankers would have to come either via Russian ports on the Black Sea or from the Russian Far East.”

Finally, there are concerns that adapting to Russian fuel may not be easy for Pakistan. In short, around 80% of Pakistan’s oil needs of nearly 154,000 bpd are met by Middle Eastern suppliers and infrastructure.

“There are a number of issues which hinder Pakistan from importing large quantities of oil from Russia over the long term,” Shah said.

“The most important one being the lack of refining capacity for the type of oil Russia exports. This would require a major overhaul of Pakistan’s existing refining capacity which is currently set up to refine oil from Saudi Arabia and other Persian Gulf oil producers.”

Despite these doubts regarding the refining process required for Russian oil and the costs involved, Islamabad has still taken up the challenge. Initially, the Pakistan Refinery Limited (PRL) refined the Russian oil as a trial run. Since blending it with around 60-70% of Arabian light crude, “no adjustments were needed at the refinery,” a Pakistani official said, meaning the arrangement may prove to be sustainable.

Musadik Malik, Pakistan’s petroleum minister, announced that if the first order for Russian crude oil went through smoothly, imports could reach 100,000 barrels per day (bpd). Confident that refining the crude would not create losses, he said that it would be “commercially viable” and Pakistan could target “one-third of its total oil imports at the Russian crude”.

Around 45,000 tonnes of Urals, one of the lighter crudes available, have already docked at Karachi port, while the rest is on its way. Following the oil shipment, the first batch of Russian liquefied petroleum gas (LPG) cargo also arrived at the Torkham border via Uzbekistan last week and is awaiting clearance. 

"As a long-standing Western ally, Islamabad has tried to avoid any direct impact on its ties with Washington"

On the domestic front, Russian oil imports can serve to diversify Pakistan’s oil sources and bring relief in terms of energy needs. But in order to derive maximum benefits, the Pakistani government must ensure the trickle-down effect with low energy prices that can help control inflation.

Paid for in Chinese currency, the oil transaction with Russia marked a shift in Pakistan’s US dollar-dominated export payments policy.

Taking one more step towards the East due to its financial predicament, Islamabad has also finalised a barter trade mechanism with Russia, Iran, and Afghanistan.

Sabena Siddiqui is a foreign affairs journalist, lawyer and geopolitical analyst specialising in modern China, the Belt and Road Initiative, Middle East and South Asia. 

Follow her on Twitter: @sabena_siddiqi