Pakistan seeks to begin settling trades for oil from the Russian Federation in the Chinese yuan, circumventing the U.S. dollar, according to a new report.
Federal Minister For Power, Khurram Dastgir Khan, told Bloomberg in an interview published on May 9 that while the country “placed an order for a single cargo of Russian oil” it wishes to settle transactions with yuan instead of dollars.
Khan said, “We hope that if this becomes a long-term arrangement, it’ll become a rupee and Chinese currency transaction…And perhaps that currency swap needs to become larger in order for us to take advantage of other opportunities that might arise.”
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Such a deal would benefit Russia, which in the face of heavy international sanctions following the invasion of Ukraine in February 2022, faces difficulties selling crude in the U.S. dollar-denominated markets.
For Pakistan, the government signed itself into a $4.5 billion currency swap facility with the Chinese government, the Chinese Communist Party.
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According to Pakistan-based English-language outlet The Express Tribune, Pakistan paid 36.3 billion rupees (US$126 million) in interest on the facility with the CCP in the 2021–22 year, according to a November of 2022 article.
The outlet states the figure was a 39 percent increase in cost of borrowing compared to the year prior, amounting to an additional 10.2 billion rupees (US$34.7 million) paid.
This facility dates back to 2011 and is an agreement between the State Bank of Pakistan and the People’s Bank of China and was extended in size by 50 percent in 2022.
An Energy Ministry spokesperson told Bloomberg that the “first cargo of Russian oil will arrive within a month, and was purchased at a discount.”
Such transactions already have their precedent. Shortly after the war broke out, in March 2022, India purchased 3 million barrels of crude from Russia at a heavy 20 percent discount on a trade that settled in the Indian rupee, Vision Times reported.
But for soothsayers that the developments are the proverbial canary in the coalmine evidencing the coming collapse of the U.S. petrodollar as the global reserve currency, victory may be too early to call.
On May 6, Times of India reported that Russia’s Foreign Minister Sergei Lavrov lamented to reporters outside of the Shanghai Cooperation Organization that they now had more Indian rupees than the country could spend.
Lavrov said, “This is a problem … We need to use this money. But for this, these rupees must be transferred in another currency, and this is being discussed now.”
The outlet said that Russia’s imports from India shrank by almost 12 percent in 2022, while exports rose by a factor of five on account of refineries gorging on discounted Russian crude.
In April 2022, Governor of the Bank of Russia, Elvira Nabiullina, told the State Duma that while the economy was at present stable despite the immediate shocks from the initiation of the war, that the situation “is indeed entering a difficult period of structural changes associated with sanctions,” Vision Times reported.
But Nabiullina warned the “changes” would trickle down and begin to “increasingly affect the real sectors of the economy.”
Much smaller economies such as Sri Lanka, an island of 22 million people off the Southwestern coast of India, experienced first hand the hardships created when there are no U.S. dollars in the national treasury’s foreign reserves.
After COVID-19 pandemic lockdown measures, work from home mandates, and travel restrictions destroyed the tourism economy, Sri Lanka found itself rapidly depleting its cache of petrodollars.
The country, which otherwise exports mostly agricultural goods such as tea, heavily relied on tourists and citizens working overseas to fill its coffers with dollars needed to supply the country with gasoline, diesel, and a unique kind of propane-style gas most households relied on for cooking and heating.
As protests emerged, the government was rocked by a crisis so significant that the President’s home was burned to the ground by rioters in July 2022, a move that came after unrest led to the burning of 38 politicians’ homes just a month earlier in May.
By July, amid fuel rationing Sri Lanka installed a QR-code based social credit passport system to control what little fuel supply was available after essential services and sectors were given their share of what the country was able to import.
Chatter about the yuan potentially becoming a secondary settlement device to the petrodollar for oil in emerging markets has increased since March 2022 when Saudi Arabia, a major producer that is also encumbered by tight ties to the United States, was said to be looking at settling “some” oil sales with Beijing in yuan.
The CCP had been pushing the Saudis to accept yuan for oil since at least 2011, with the March rumors emerging just a day after Saudi state run company Aramco announced a deal to build a $10 billion refinery in Northeastern China, Vision Times reported.
“Aramco also owns the largest refinery in the United States in the form of Houston-headquartered Motiva, which provides more than 2,500 jobs and produces more than 600,000 barrels of oil per day,” we stated at the time.
Business Insider reported that members of the Pakistan government have stated they are willing to import 100,000 barrels per day of Russian oil if they can transact in yuan instead of the dollar.
According to data analysis firm CEIC, as of December 2021, Pakistan, which is home to 231 million people, consumes roughly 500,000 barrels of oil per day.