What Islamabad Is Trying To Do
Islamabad’s new energy approach has a simple headline: diversify crude supply by tapping discounted Russian barrels to lower import costs, protect foreign exchange, and reduce pressure on electricity tariffs and the power sector’s circular debt. The policy is pragmatic in intent and not anti-anyone; it is about stretching scarce dollars and building energy security.
Pakistan first tested Russian Urals crude in mid-2023. The inaugural government-to-government cargo was paid in Chinese yuan, a notable shift from dollar-only energy trade. That trial showed it could be done operationally and financially under the G7 price-cap architecture, which Washington has said allows countries to make “sovereign decisions” on sourcing so long as sanctions are respected.
The Refining Reality Check
After the initial fanfare, refiners hit constraints. Urals is a medium-sour grade that Pakistan’s older, hydro-skimming plants can run, but yields matter. Industry disclosures and local reporting through late-2023 indicated higher furnace oil output from Russian blends versus Gulf crudes, hard to monetize when domestic FO demand is structurally weak and global FO prices softened. PRL documented successful processing of Urals in 2023, but the economics remained cargo-by-cargo rather than a slam dunk.
Infrastructure also matters. Early shipments were split at Oman because Karachi’s berths couldn’t take the larger tankers; the arrival of Cnergyico’s single-point mooring helped, but port depth and handling remain practical bottlenecks, limiting how fast Russian supply can scale.
Where Things Stand in 2025
Through 2024, Pakistan clarified there was no standing government-to-government crude contract with Moscow, even as private-sector barrels continued opportunistically when discounts and logistics lined up. In 2025, Pakistan is also taking its first U.S. crude cargo via a private deal, evidence that “diversification and arbitrage” remains the real policy, not single-supplier dependence.
On the gas side, the long-mooted Pakistan Stream Gas Pipeline with Russia has not broken ground. As of July 2025, both sides publicly say they want it, but disagreements over structure and financing and the exposure of Russian counterparties to sanctions keep pushing timelines. Until those are resolved, Russian pipeline gas is not part of Pakistan’s near-term security equation.
The Sanctions Perimeter, and Why It Matters
The U.S.-EU-G7 “price-cap coalition” allows shipping, insurance and other services for Russian crude sold at or below the cap (US$60/bbl for crude), but enforcement has tightened since late-2023 with new advisories and penalties on violators. For Pakistan, that means any Russian cargo must be structured with compliant service providers and documentation to avoid secondary risks. Early U.S. statements in 2023 that Pakistan’s purchases were its “sovereign decision” still apply within this rule-set; the rule-set itself has been updated several times, raising compliance costs industry-wide
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Can Russian Barrels Fix Circular Debt?
Cheap feedstock helps margins at refineries and can, at the margin, ease pump prices and fuel cost adjustments. But the power sector’s cashflow problem is larger than any one crude stream. The IMF’s April–May 2025 review pegs the stock of power-sector circular debt at roughly PRs 2.53 trillion by end-February 2025 (about 2.2% of GDP), despite better collections and tariff adjustments. Islamabad’s plan for 2025 converts a big chunk of that stock into longer-tenor debt, cuts interest burdens, and ties repayment to a debt-service surcharge, all to stabilize cash flows and stop new arrears.
The government is also executing a restructuring to slash arrears owed to power producers through bank-financed payments, with local reporting in late July 2025 indicating a targeted reduction of the power CD stock from about PRs 2.38 trillion to near PRs 0.56 trillion once transactions complete. That is ambitious and contingent on execution, but it underlines the point: structural fixes, tariff discipline, loss reduction, and financing reform move the circular-debt needle more than any single crude discount.
The Economics: Discounts vs. Yields
In pure arithmetic, a deeper discount on Urals can be offset by poorer light-product yields and higher FO output, especially when FO is hard to clear. That is why Pakistani refiners have treated Russian barrels as a blend component, not a full swap from Gulf grades. When logistics are smooth and discounts are wide, Russia works. When FO cracks soften or freight and insurance creep up under tighter sanctions policing, it doesn’t. The 2025 purchase of a U.S. cargo by Cnergyico reinforces that refiners are shopping globally, not ideologically.
The Politics: Managing Multiple Capitals
Diplomatically, Pakistan has walked a consistent line, i.e, buy where it’s cheap and legal, keep partners briefed, and avoid breaching the cap. U.S. briefings since 2023 have publicly framed such choices as sovereign, within sanctions rules. European attitudes track the coalition guidance. Russia, for its part, wants market share and strategic ties, but projects like Pakistan Stream keep meeting practical headwinds. Balancing these interests, without feeding any “bloc” narrative, remains sound statecraft.
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Bottom Line
Pakistan’s “new energy policy” is not a pivot to Russia so much as a sober attempt to widen supply options in a tough market. The first yuan-settled cargo in 2023 proved the mechanics; 2024-25 proved that economics and compliance decide each shipment. In 2025, real gains in energy security will come less from any single crude source and more from grinding execution on power-sector reform, disciplined procurement across suppliers (Russia included when it pays), and de-risking logistics. That combination can lower the fuel component of electricity tariffs over time and help lock in the ongoing reduction of circular debt, without burning bridges with Washington, Brussels, or Moscow.
