Russian oil is cheap, but it is too little, crude, and comes from far away to be of much use.
The government has increased petroleum product prices in Pakistan today. The increase is significant, as both petrol and High-Speed Diesel per barrel prices have been raised by almost Rs.20. This is despite the fact that Pakistan has imported the first shipment of “cheap” Russian oil, with its second shipment currently under negotiation.
On the face of it, the cheap Russian oil isn’t helping an average Pakistani save money. So, what has gone wrong? Has the promised “cheap oil revolution in Pakistan,” ushered in by Russian oil, soured? Let’s dig in and find out what has gone wrong.
Too Little
The biggest problem is that we don’t have enough cheap Russian oil to make a dent in the local oil market and offset OPEC prices.
To make an impact and take advantage of the discounted prices for Russian crude, the government wants to increase its oil imports from Russia to two-thirds of its total imports. However, this is unlikely to happen as Pakistan does not have enough money to pay Russia to buy this much oil. Pakistan paid for its first Russian crude cargo in Chinese yuan.
Furthermore, even if this much oil is imported, our ports cannot handle this volume of oil, and our refineries struggle to process and purify this much crude. The first Russian shipment first landed in Oman and then later came to Pakistan in smaller ships. The country received its first shipment in June, and negotiations are ongoing for a second cargo. However, achieving this target is unlikely due to the reasons mentioned above.
Too Crude
The more our refineries have to work on the Russian crude, the more it adds to the cost of processing.
Despite the advantages of acquiring cheap Russian oil, its benefits are being prevented by higher shipping costs and the production of lower-quality refined products when compared to fuels made from crude supplied by Pakistan’s main oil suppliers, Saudi Arabia, and the United Arab Emirates. These factors are limiting the overall impact of Russian oil in the local oil market.
The quality of Russian crude is a significant obstacle for Pakistan’s refineries as they struggle to produce the same amount of gasoline and diesel from it compared to Saudi and UAE crudes. To address this issue, Pakistan Refinery Ltd (PRL) plans to take at least two months to fully process its first shipment of 730,000 barrels of Russian crude. The refinery needs to blend the Russian crude with Middle East crude to offset the high production of fuel oil from the Russian oil. This blending process is necessary to optimize the refining process and make the best use of the Russian crude.
To compensate for the lower production of gasoline and gasoil from Russian crude, Pakistan will need to increase its imports of these fuels. This will result in more outflow of dollars and add further strain to Pakistan’s already crisis-hit economy.
Too Far Away
One of the challenges faced in importing Russian crude oil to Pakistan is the higher transportation costs compared to Middle Eastern crudes.
This is primarily due to the longer distance traveled, and Pakistan’s ports being unable to accommodate the large vessels departing from Russia. To overcome this, crude from Russia has to undergo a lightering operation in Oman, where it is transferred from a supertanker to smaller ships before reaching Pakistan. In contrast, direct shipments are possible from the Middle East. These logistical issues add to the complexities of importing Russian oil to Pakistan. However, Russian oil is still cheaper.
But Is It Still Worth It?
While both the Russian and Pakistani governments have withheld the discounted price, it is known that it is significantly cheaper than the oil imported from Gulf countries. The difference could be $10-$11 per barrel, making Russian oil considerably more affordable.
We have tried to simplify a complex subject for our readers. Hopefully, we have been able to convey the message effectively. Please leave your comments in the section below if you would like to see more blogs like these.
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