Pakistan mulls buying US crude as bargaining tool to negotiate Trump tariffs

Pakistan is actively looking to import US crude oil, in a bid to soften the tariff stance after the 90-day cooling period and maintain healthy bilateral trade with Washington, said refinery sources, industry analysts and government officials over April 24-29.

US President Donald Trump paused country-specific reciprocal tariffs for 90 days on April 9, which stood at 29% for Pakistan. The South Asian nation is looking at diplomatic tools to negotiate softer tariffs, with the country's top refiner Cnergyico expressing strong interest in light sweet US grades.

Usama Qureshi, vice chairman of Cnergyico, said the refiner has been regularly cracking light-end Saudi crude grades and light sweet US grades would be able to fit its feedstock configuration.

Qureshi also highlighted the refiner's logistical advantages of importing larger ships like Aframax and Suzemax, as larger tankers reduce freight costs per metric ton.

Furthermore, adding light sweet US crude into the refiner's feedstock blend would enhance production of gasoline and motor fuel middle distillate products, which have been in short supply, forcing Pakistan to rely heavily on imports, according to Qureshi.

Pakistan imported 3.973 million mt of motor gasoline and nearly 1.492 million mt of diesel in the nine months of the fiscal year ended March 31, up 12.4% and 21.3%, respectively, from a year ago, data from the country's Oil Companies Advisory Council, or OCAC, showed.

During a recent visit to the US, Muhammad Aurangzeb, Pakistan's finance minister, highlighted that although Islamabad has been a net exporter of goods to the US, the South Asian nation is an active buyer of US goods and services.

Exports to the US rose 12% to $4.5 billion in the nine months ended March 31, while imports from the US increased 25% to $1.729 billion during the same period, according to the State Bank of Pakistan.

The finance minister said Pakistan is already importing cotton and soybeans and is looking to attract further investments from the US. To facilitate this, the government plans to send a delegation to the US in the coming weeks to discuss potential duty relaxation and explore new avenues for boosting trade.

Switching to US crude should not pose a problem for Pakistani refineries accustomed to various crude types.

Shankar Talreja, a research analyst at Karachi-based Topline Securities, said Islamabad should showcase efforts to address the US trade deficit with Pakistan.

US crude arbitrage economics

While US crude oil imports could enhance energy security, they would involve significantly higher costs due to long-distance freight, insurance, and handling costs compared to regular suppliers like Saudi Arabia or the UAE, according to industry sources and analysts.

"Diversification of sources can enhance energy security and provide leverage in negotiations, but the added logistical expenses and strain on foreign exchange make US imports less economically viable in the long term," said Ali Nawaz, CEO of Chase Securities.

Muhammad Awais Ashraf, director of research at AKD Securities, indicated that WTI Midland spot price differentials need to come off to offset the higher freight costs of transporting US crude.

Platts, part of S&P Global Commodity Insights, assessed the spread between WTI Midland and Dubai crude on a DES Singapore basis at a premium of $3.45/b on April 28.

Pakistan on average imports nearly 190,000 b/d of crude oil, mainly from Middle Eastern suppliers such as Saudi Arabia and the UAE.

Sourcing crude oil from distant locations could negatively impact Pakistan's economy, as higher import bill and transportation costs could exacerbate domestic inflation, cautioned Amreen Soorani, head of research at Al-Meezan Mutual Fund.