Pakistan has placed its first order for discounted Russian crude oil under a deal struck between Islamabad and Moscow, the country’s petroleum minister said, with one cargo to dock at the port of Karachi in May.

Pakistan’s purchase gives Russia a new outlet, adding to Moscow’s growing sales to India and China, as it redirects oil from western markets because of the Ukraine conflict.

As a long-standing Western ally and the arch-rival of neighbouring India, which historically is closer to Moscow, analysts say the crude deal would have been difficult for Pakistan to accept, but its financing needs are great.

Discounted crude offers respite as Pakistan faces an acute balance of payments crisis, risking a default on its debt obligations. The foreign exchange reserves held by the central bank are scarcely enough to cover four weeks of controlled imports.

Energy imports make up the majority of the country’s external payments.

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Under the deal, Pakistan will buy only crude, not refined fuels, Minister Musadik Malik told Reuters late on Wednesday. Imports are expected to reach 100,000 barrels per day (bpd) if the first transaction goes through smoothly, he said.

"Our orders are in, we have placed that already," he said, confirming source-based information that the country would not buy refined products.

A source in Moscow who is familiar with the negotiations told Reuters that the final deal was reached in recent days.

The Russian government did not respond to a request for comment.

Major Russian oil companies have discussed the possible supply of oil to Pakistan over recent months, two trading sources familiar with the talks said, but declined to disclose the names of possible suppliers. One of the sources, speaking on condition of anonymity, said Russia plans to supply Urals crude to Pakistan.

Islamabad imported 154,000 bpd of oil in 2022, around steady with the previous year, data from analytics firm Kpler showed.

The crude was predominantly supplied by the world’s top exporter Saudi Arabia followed by the United Arab Emirates. The 100,000 bpd from Russia in theory greatly reduces Pakistan’s need for Middle Eastern fuel.

Asked about the impact of the Russian imports on local pricing, Malik said that would be apparent once the crude had been refined and was ready to sell.

The U.S. dollar historically has been the currency of oil trade, but the Ukraine war has eroded its dominance as Russia avoids receiving a currency it has been largely blocked from using by Western sanctions.

Pakistan’s economic crisis meanwhile means it is desperately short of hard currency.

Malik declined to say whether Chinese yuan and the UAE dirham would be used for transactions. He also did not comment on the rate of imports.

"I will not disclose anything about the commercial side of the deal," he said.

Pakistan’s Refinery Limited (PRL) will initially refine the Russian crude in a trial run, followed by Pak-Arab Refinery Limited (PARCO) and other refineries, Malik said.

As part of sanctions on Moscow, Western nations have imposed a $60 a barrel price cap on purchases of Russian oil to try to limit Russia’s revenues for fighting in Ukraine.

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India and China, however, have paid prices above the cap, according to traders and Reuters calculations.

Russian Energy Minister Nikolay Shulginov led a delegation to Islamabad in January, after which he said oil exports to Pakistan could begin after March.

Malik in turn took a delegation to Moscow to negotiate the deal late last year.

Pakistan and the International Monetary Fund (IMF) have been locked in negotiations since early February for the release of a $1.1 billion tranche of a $6.5 billion bailout agreed in 2019.