Saudi Arabia is considering establishing crude oil storage facilities in Pakistan to secure supplies amid disruptions in the Strait of Hormuz. The proposed plan could strengthen Pakistan’s energy security while also covering refinery upgrades, crude oil supplies and LPG procurement.
Saudi Arabia comes up with a new concept
Pakistan may be the place where Saudi Arabia tries out a new idea, that of having oil storages abroad, in Pakistan as a matter of fact. This transpired in a meeting of federal Petroleum Minister Ali Pervaiz Malik with the new Saudi Ambassador to Pakistan, Dr Rajeh ibn Tami Al-Baqami, in Islamabad. Apart from the oil storage plan, a number of other matters were also decided, including refinery upgrades, crude oil and LPG procurement. The storage plan is rooted in the Iranian closure of the Strait of Hormuz, which has not only meant that Pakistan has its crude oil supplies disrupted, while Saudi Arabia has had to cut back on its exports. Storing crude in Pakistan would allow Saudi Arabian companies to have supplies to fulfill commitments if supply was interrupted. As these companies would build the storage facilities themselves, Pakistan would find answered one of the biggest objections to its developing reserves, the expense. Not only would Pakistan avoid having to pay for these storages, but the crude would be stored on a bonded tax-neutral policy, which would mean that Pakistan would not have to pay for the oil. Obviously, some of that crude would be released to Pakistani refiners, and though the blessings of both governments would be there, the arrangements would be between companies.
Saudi Arabia has only followed China, which has high hopes of getting Pakistan to provide it access to both agricultural and industrial facilities through the China-Pakistan Economic Corridor, in using Pakistan’s strategic location. Both are trying to escape geographical constraints. China is trying to find a shorter route off the New Silk Road to the Indian Ocean, assuming that it will face constraints in the Pacific from the USA. Saudi Arabia needs to find an alternative route to both the Hormuz and Bab Al-Mandab Straits.
Thisone example of something that is happening all over the world: the struggle to bypass the Hormuz Strait. The problem of the blockage is most acute for those countries which use it for export, like Saudi Arabia, but it is also something that exercises countries which, like Pakistan, rely on the Strait for oil supplies. One of the matters which should have been discussed was Pakistan’s request for an extension of the Saudi oil facility, but it should not be mixed with the storage plan, which is so clearly of mutual benefit.
