Pakistan has placed an order for a single cargo of Russian oil, but is keen for a long-term deal to buy the crude in Chinese currency, according to the country’s power minister.
The payment for the first shipment has been made in US dollars but Pakistan would like further purchases to be in made in yuan, given the nation has a currency swap arrangement with China, Minister Khurram Dastgir Khan said in an interview late last week.
“We hope that if this becomes a long-term arrangement, it’ll become a rupee and Chinese currency transaction,” he said. “And perhaps that currency swap needs to become larger in order for us to take advantage of other opportunities that might arise.”
Such a deal would dovetail with Russia’s desire to move away from using the dollar or euros for its exports and China’s ambitions to take the yuan global to chip away at the greenback’s dominance. It would also offer some relief to Pakistan, which is heavily reliant on energy imports and is trying to revive a stalled $6.5 billion bailout package with the International Monetary Fund to avoid a default.
Pakistan’s first cargo of Russian oil will arrive within a month, and was purchased at a discount, a spokesman in the energy ministry’s petroleum division said in response to questions.
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China and India — the biggest importers of Russian oil — have been increasingly using yuan, rubles or UAE dirhams to pay for shipments. It’s unclear if Indian refiners have been using rupees, but Russian Foreign Minister Sergei Lavrov said this month that the Kremlin now had too much of the Indian currency that it couldn’t use.
The use of the yuan in global trade, while still minuscule compared with the dollar, appears to be gaining traction. Brazilian hardwood pulp producer Suzano SA is considering selling its products to China in yuan, and Bangladesh recently agreed with Russia to settle a $300 million payment related to the building of a nuclear plant near Dhaka in renminbi, officials familiar with the matter said.
Pakistan has been trying to restart bailout talks with the IMF for about six months. The multilateral lender has expressed reservations about a plan to raise fuel prices for the wealthy to finance a subsidy for those on lower incomes, Petroleum Minister Musadik Malik said in a Bloomberg TV interview on Tuesday.
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The South Asian nation’s energy crisis isn’t as severe as last year because of weaker demand for electricity caused by relatively cool weather and higher power prices, according to Minister Khan. That’s put the country in a better position ahead of peak demand over summer, with Pakistan being able to produce more electricity from oil it’s stockpiled recently and with additional coal generation coming on stream, he said.
The government is also expected to soon approve a plan for Saudi Arabia to build an oil refinery in Pakistan, Khan said. The two countries agreed in principle to set up the facility in 2018.