Saudis bail out Pakistan with $5.9bn oil facility

* Agreement to last until end of current fiscal year
* Saudi Arabia sells about 110,000 barrels of crude oil daily to Pakistan

By Iqbal Latif

JEDDAH: Saudi Arabia agreed in principle on Saturday to defer payments for crude oil sales to Pakistan expected to be worth about $5.9 billion during the 2008-09 financial year.

“There is an agreement ... to defer oil payments. The modalities are being worked out,” Finance Minister Naveed Qamar said in an interview with the Financial Times on Friday night.

While Qamar would not discuss the time-span for which payments on Saudi oil shipments would be deferred, a Petroleum Ministry official separately said that the agreement involved deferring payments until at least June 2009 when the financial year ended.

It was not clear if the deferred payments would have to be paid back. The Saudis in 1998 began supplying crude oil under a deferred payment plan after Pakistan carried out its maiden nuclear tests and came under international sanctions. In that previous case, after three years of deferred payments, the Saudis practically wrote off the payments. Insiders expect that there may be a similar write-off in the future of the deferred payments now under discussion.

Sources in Jeddah indicated to Daily Times that the Saudi economic package may contain a political element too, related to President Pervez Musharraf’s future. This bailout puts the Saudis in the driving seat, along with the Americans, as far as Pakistani internal and external politics is concerned, with both the Pakistan People’s Party and the Pakistan Muslim League-Nawaz (PML-N).

Apparently, the immediate impact will be on PML-N chief Nawaz Sharif’s politics of confrontation with Musharraf, which will have to be diluted significantly in line with ground realities. The Saudis, like the Americans, want a stable transition to civilian rule and no confrontation between the politicians and the military, including Musharraf.

Crude oil: Saudi Arabia sells about 110,000 barrels of crude oil daily to Pakistan or about 40 million barrels a year, which at $147 a barrel comes to about $5.88 billion. Pakistan imports a total of 202,000 barrels per day or approximately 73.7 million barrels a year – half of that from Saudi Arabia. Pakistan consumes a total of 370,000 barrels a day or about 135 million barrels a year. The gap between oil imports and consumption is filled with locally produced oil.

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