Pakistan Deepens Ties with Russia for Wheat and Oil, while Arming Ukraine

In the midst of an ongoing economic crisis, Pakistan is seeking closer ties with Russia to secure cheaper oil and food supplies. Despite its involvement in shipping defense material to Ukraine via Poland and Germany, at the request of Western nations, the Pakistani government has initiated efforts to enhance economic cooperation with Russia.

The aim is to establish long-term energy deals for importing crude oil and LNG, according to sources familiar with the matter. Although the proposition for long-term agreements has faced challenges, the first shipment of crude oil from Russia recently arrived in Pakistan after tough negotiations.

Pakistan, grappling with the impact of the Ukraine conflict, political instability, and fiscal mismanagement, is keen on broadening its economic partnership with Russia to address its energy and food security concerns.

However, the nation remains dependent on the West, creating a delicate balancing act between the two power centers, as stated by the sources. Furthermore, Pakistan is considering establishing a transit route to Russia and focusing on facilitating smoother trade to further its interests in Afghanistan and Central Asia.

Trade between Pakistan and Russia has decreased since the Ukraine war, and a similar decline has been observed in Pakistan's trade with Ukraine, despite Pakistan's significant role as a non-Western supplier of weapons to Kyiv through its army.

Reportedly, Russia has expressed frustration over the delay in the Pakistan Stream gas pipeline, while China is actively working to bridge the gap between Russia and Pakistan. Payments for Russian oil by Pakistan have been made in yuan. However, any effort to strengthen ties with Russia may have adverse consequences for Pakistan's textile exports to the European Union, significantly impacting its fragile economy. Pakistan's traditional allies in the Gulf are unlikely to provide substantial bailouts, adding to the nation's economic woes.

Pakistan's economy is currently facing dire straits, with the International Monetary Fund (IMF) recently criticizing the country's budget. The IMF's resident representative in Pakistan issued a statement, stating that the tax policies outlined in the new budget missed an opportunity to broaden the tax base in a more progressive manner.

Additionally, the IMF expressed concerns about the extensive list of new tax expenditures, which further diminishes the fairness of the tax system. Consequently, the disbursement of aid from the IMF has been suspended, as the organization demands more robust fiscal policies from Pakistan.