Our Way is Open: Pakistan’s Trade of Crude Oil in Chinese Currency


A shift in global economic dynamics is quietly underway. As the United States gradually draws back from the Middle East, China is strategically positioning itself in the region, bringing its economic clout and ideology to the forefront.

In recent years, Pakistan has increasingly leaned on Chinese loans and investment as a lifeline amid a turbulent economic landscape. To avert default, Pakistan’s government borrowed another $2.3 billion from China in June 2023 to bolster its foreign reserves. As Pakistan grapples with economic challenges, its hope for development lies significantly in courting Chinese investment.

The centerpiece of China’s strategic investment in Pakistan is the China-Pakistan Economic Corridor (CPEC), a flagship project of the BRI. CPEC, which comprises a series of Chinese-financed energy and infrastructure projects, represents upwards of $62 billion in aid and investments. The top goal of CPEC is to connect the landlocked western Chinese city of Kashgar to the Arabian Sea via Gwadar, an alternative route for shipping gas and oil that bypasses potential chokepoints, thereby making China’s maritime trade less vulnerable during potential conflicts.

The proposal for Pakistan to trade crude oil in Chinese currency represents the next logical step in this symbiotic relationship. This move aligns with China’s long-term strategy of internationalizing its currency, the Renminbi (RMB), and its aim to establish the RMB as a global reserve currency.

The economic implications of this transition are profound. Amid an economic crisis and balance of payments problem, Pakistan finds itself facing the risk of defaulting on its external debt. Trading in Chinese currency (RMB) for crude oil provides a temporary relief by reducing dependency on US dollars, helping Pakistan diversify its foreign exchange reserves. Another economic benefit lies in Pakistan’s access to discounted Russian crude oil. As oil constitutes a significant component of Pakistan’s imports, cheaper oil can help reduce the country’s trade deficit. Additionally, trading in RMB may also foster greater trade relationships with other countries involved in China’s Belt and Road Initiative, providing new opportunities for Pakistan’s exports. While the switch to Chinese currency for oil trade could potentially offer benefits for both countries, it is essential to tread with caution. The Sri Lanka debacle, wherein excessive reliance on Chinese loans led to economic collapse, serves as a stark reminder of the risks inherent in such economic dependencies.

Pakistan’s currency shift for oil trade can impact its national security in several ways. The most conspicuous risk lies in the country’s growing economic reliance on China. Over-dependence on a single nation for trade and currency exchange could increase Pakistan’s vulnerability to China’s economic performance and policy decisions. Also, any potential tension or disagreement between the countries could disrupt Pakistan’s oil supply, endangering its energy security. Secondly, this development may be viewed as Pakistan gravitating towards Russia and China and distancing from Western allies. It might lead to the alienation of the West, affecting Pakistan’s geopolitical support system, further risking its international security status.

On the political front, this shift indicates a realignment of alliances. Traditionally a Western ally, Pakistan appears to be pivoting towards the East, drawing closer to Russia and China. This move may help Pakistan leverage new partnerships for political and economic support amid its challenging domestic scenario. Moreover, it positions Pakistan as a significant player in the evolving geopolitical landscape defined by the increasing prominence of the East. However, the implications are double-edged. This geopolitical shift may lead to strained relations with the US and other Western allies, potentially impacting Pakistan’s diplomatic support on international platforms. Pakistan’s decision also sends a signal to other nations, especially those grappling with economic crises. This model of seeking alternatives to the US dollar in international trade may find more takers, potentially leading to a broader shift in global trade patterns.

Pakistan’s decision to trade crude oil in Chinese currency, as supported by the Chinese Foreign Ministry, is an intriguing development that poses significant implications for the nation and beyond. While it offers some economic relief for Pakistan and presents new geopolitical configurations, it also brings forth new challenges and vulnerabilities. Only time will tell how Pakistan navigates these complexities and whether this bold move will pay off in the long term.

Sahibzada M. Usman, Ph.D.
Sahibzada M. Usman, Ph.D.
Research Scholar and Academic; Ph.D. in Political Science at the University of Pisa, Italy. Dr. Usman has participated in various national and international conferences and published 30 research articles in international journals. Email: usmangull36[at]gmail.com


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