Pakistan's petroleum minister Musadik Malik has revealed that his country paid for its first imports of discounted 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 which 45,000 tonnes have already docked at Karachi port.
The decision to pay in Chinese currency instead of the traditional U.S. dollar comes after Russia last year 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.
On its part, the new arrangement is convenient for Pakistan considering that the country is facing a severe shortage of foreign exchange reserves and risks defaulting on its debt obligations. Pakistan has long been a close Western ally and an arch-rival of neighboring India, which itself has massively ramped up imports of cheap Urals.
Last month, a report by the Center for Research on Energy and Clean Air (CREA) titled Laundromat: How the price cap coalition whitewashes Russian oil in third countries, revealed that Western countries bought $42 billion worth of laundered Russian crude in the form of various oil products from nations that are friendly towards Russia, with India leading the five other countries. For instance, India's diesel exports tripled to ~1,600,000 barrels per day in March 2023, compared to a year ago, making diesel one of the largest components of India-EU trade.
Russia ditching the greenback is not without its own headaches.
Business Insider has reported that Russia is accumulating $1B in Indian rupees per month and struggling to trade in the currency since India imports far more from Russia than the reverse. Overall, Bloomberg has estimated that Russia accumulated a staggering $147 billion in net foreign assets built up over 2022 alone due to sanctions and the new currency regime.
By Alex Kimani for Oilprice.com
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Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. More
Comments
For Pakistan, paying in petro-yuan is convenient considering that the country is facing a severe shortage of foreign exchange reserves.
Pakistan is among a growing number of countries who are dropping the petrodollar and paying for their oil imports in other currencies.
Sooner or later Saudi Arabia and Gulf Cooperation Council (GCC) countries will adopt the petro-yuan as a means of payment for their oil exports to China. This would reduce the petrodollar’s share in the global oil trade by 22%.
And with China paying for its estimated 13.0 million barrels a day (mbd) of crude imports in petro-yuan, Russia selling its 8.0 mbd of exports in ruble and petro-yuan, Venezuela and Iran already accepting the petro-yuan and India paying in rupees for its 5.0 mbd of crude imports, the petrodollar will certainly lose an estimated 60% of its global oil trade. This could probably lead to a devaluation of the dollar by one third to one half of its current value.
Moreover, BRICS (Brazil, Russia, India, China and South Africa) are working on developing a “new currency” away from the dollar for using among themselves that will be presented at the organization’s upcoming summit in June in South Africa. This coincides with a growing global de-dollarization trend.
Of recent times 19 countries among them seven oil-producing countries (Saudi Arabia, Iran, UAE, Algeria Egypt, Bahrain and Mexico) have either applied to join BRICS or expressed interest in doing so.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert