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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.