As the world moves toward de-dollarisation, what are the reasons Islamabad seeks to do the same and how challenging can it be?
Last week, Moscow hosted an important event known as Russian Energy Week. Foreign prime ministers, top officials, ministers, ambassadors, foreign parliamentarians, and the heads of international and regional organisations attended the Manege Central Exhibition Hall in Russia's capital from October 11-13.
The theme of this grand gathering was dubbed the 'New Reality of World Energy: Creating the Future'. The event drew more than 4,000 guests from over 60 countries.
Pakistan's interim federal Energy Minister, Muhammad Ali, also joined Russian Energy Week 2023. When speaking to the press, he highlighted his government's interest in boosting the purchase of Russian oil.
"We are talking about deliveries of 1 million tonnes of oil. The specific volume will depend on commercial conditions, on the price. If the price is good, we move forward and sign the contract," the minister said.
He went on to say that Pakistan expects Russia to cover 10% of the country's oil demand in the future, and that number will increase to around 30% within the next few years.
A Russian oil cargo carrying discounted crude, is anchored at a port in Karachi, Pakistan, Tuesday, June 13, 2023.
© AP Photo / Fareed Khan
"Today we are meeting with Gazprom and Novatek to discuss LNG," the minister said during the event.
It was reported that the Pakistani delegation wanted to discuss LNG import options and the Pakistan Stream Gas Pipeline (PSGP), formerly known as the North-South gas pipeline, during the meeting with the Russian companies.
These collaborations between Pakistan and Russia in the energy sector come from a government-to-government (G2G) agreement signed earlier this year. Under the G2G deal, Pakistan has already imported 100,000 tonnes of crude oil from Russia in June, which was described as a “transformative day” by then PM Shehbaz Sharif.
The crude oil import was followed by a delivery of 100,000 metric tonnes of Russian liquefied petroleum gas (LPG) through Iran late last month.
Pakistan's Reluctance to Pay in Dollars
In an ever-changing global economic landscape, Pakistan is making a strategic move to purchase oil and gas from Russia and explore payment options outside the traditional US dollar.
Sputnik India spoke to a former Unit Manager at Engro Corporation and analyst, Dr. Shahid Rashid, who said that this interest comes as part of Pakistan's broader strategy to diversify its energy sources and reduce its dependency on the dollar, which has been the dominant global currency for oil transactions.
"Pakistan's quest to diversify its energy sources is driven by several key factors. The first factor is energy security. Pakistan's economy is heavily reliant on imported oil and gas and any disruption in supply can have severe consequences, hence diversifying sources minimizes this vulnerability," Dr. Rashid explained.
He further said that Pakistan also wants to reduce its dollar dependency to mitigate the risk of a fluctuating market. Also, US sanctions on Russia have made it difficult to conduct business in dollars and Moscow is using alternative financial infrastructures.
"With the global trend of moving toward de-dollarisation and America's internal economic policies, the dollar is susceptible to fluctuations. By exploring alternative currencies, Pakistan aims to mitigate this risk," the analyst added.
Screaming dollar
© Photo : taken from social media
There are also geopolitical considerations, as Pakistan's relations with the United States have been complex, and reducing dependence on the greenback may serve as a strategic move to assert independence in its foreign policy.
Exploring Payment Alternatives
According to Dr. Rashid, Pakistan and Russia could explore options of using their respective currencies for transactions. This would strengthen economic ties between the two nations. However, he pointed out that this strategy could be implemented in the coming years, since right now the most optimum method of payment could be using the Chinese yuan.
"Apart from [the] yuan I would even suggest using a barter system, wherein Pakistan could exchange goods or services with Russia in lieu of direct payment. This approach reduces the need for a reserve currency like the dollar. This method has been used by Iran to do business with European countries in recent years, so that is also an option for Pakistan to consider," the analyst said.
Using regional currencies or barter systems requires economic stability, which both countries need to ensure for this strategy to succeed. However, there are more options in addition to conducting trade in yuan or via a barter system. The rise of cryptocurrencies could potentially provide a new avenue for trade between the two countries.
"It makes sense for Pakistan and Russia to explore and find a safe route for using digital currencies for trade transactions as that is possibly the future of global transactions," Dr. Rashid stated.
Changing the Regional Dynamic
Growing ties between Russia and Pakistan have a huge potential for both countries and if they were to conduct business via an alternative method, it could have significant regional implications also.
For one thing, it could deepen Islamabad's relationship with Moscow, potentially fostering greater cooperation in areas beyond energy, including defence and diplomacy.
The Russian Ambassador to Pakistan, H.E. Danila V. Ganich, paid a visit to the Minister of Commerce, Dr. Gohar Ejaz, at the Commerce Ministry
© Pakistan's Ministry of Commerce
Moreover, Pakistan's pursuit of non-dollar transactions may be seen as a way to reduce US influence in the region, especially if other countries follow suit.
However, while Pakistan's diversification strategy is promising, it is not without challenges. Stronger ties between the two countries can lead to geopolitical tensions as the move could threaten the US, potentially leading to economic sanctions against Pakistan.
Nevertheless, Pakistan needs to expand its sources of energy imports while securing cost-effective options, and Russia can be a reliable and a long-term partner in this endeavour.