July 07 - 13, 2008

Co-chairman of ruling People's Party Asif ali Zardari has revealed in an interview with a private TV channel that during his visit to Saudi Arab this month, Islamabad has floated a proposal to Arab leaders for keeping the strategic oil reserves at Gwadar port city in Balochistan.. The Arab leaders are considering the economic viability of keeping their oil reserves at Gwadar where China is enagaged in building a deep-seaport, an international airport and an oil city. Pakistan provides China a viable and the shortest possible option to import oil from any of Gulf countries through its coastal town of Gwadar.

Last month, Zardari-led Pakistani delegation including the Prime Minister Yusuf Raza Gilani in Saudi Arabia discussed a number of bilateral issues with various Saudi officials, including King Abdullah. The delegation successfully managed to obtain for Pakistan a highly crucial Saudi oil facility of 110,000 barrels a day on two years credit. Under the deal, Saudi Arabia will extend a special oil facility (SOF) to Pakistan to the tune of $4.82billion, equating to 110,000 barrels of oil per day. Saudi Arabia will also invest several billion dollars in infrastructure investments in the south Asian country. The United Arab Emirates has also agreed to continue to provide oil to Pakistan on extended payment terms.

Pakistan imports over 80 per cent of its annual oil requirements from the Arab states including Saudi Arabia, Abu Dhabi, Qatar and Iran. According to an estimate, the country imports around 250,000 barrels a day from Saudi Arabia, 150,000 from Abu Dhabi, 18,000 from Qatar and 15,000 from Iran. Saudi Arabia and UAE are currently providing the country crude oil against payments deferred for 30 days. Saudi Arabia had extended the SOF to Pakistan under former Prime Minister Nawaz Sharif's government following imposition of economic sanctions against Pakistan when it conducted nuclear tests in May 1998. The same facility will now be restored to the country.

So far as the proposed storage of Arab oil at Gwadar is concerned, the viability of this project is currently under consideration of Arab leaders. Strategically located between the region with largest energy reserves of the world like central Asia & Middle East and the countries with highest energy consumption like India and China, Pakistan is in a position to ensure energy security in the region by developing an efficient energy market and the cross border trade of energy. During his visit to China in 2006, President Musharraf had offered a 'trade corridor' to meet Beijing's energy requirements. Pakistan has already expressed its willingness to help China in constructing the strategic pipeline from Gwadar to its borders enabling it to import oil from Gulf countries.


Saudi Arab recently signed an oil contract with china under which oil will be shipped from Saudi Arab to Gwadar where it will be refined and then it would be supplied to China through a pipeline. China and Pakistan are already working on a proposal for laying a trans-Himalayan pipeline to carry Middle Eastern crude to western China. The route over the Himalayas would be an expensive and challenging engineering feat, and once the oil reached China it would have to be shipped thousands of kilometers further east to coastal areas, where most energy demand is centered. The pipeline would go in tandem with Karakoram highway. The proposed pipeline would link Gwadar port with China's remote western regions, and it would be partly financed by Beijing.

The US$12.5 billion petrochemical city project at Gwadar is also being undertaken by Great United Petroleum Holdings Company Limited (GUPC) of China. China-funded oil refinery will have a total capacity to refine 21 million tons of oil per annum. The petroleum products so refined in Gwadar refinery may be transported to Kashghar on Pakistan's North through a pipeline. The proposed refinery and the oil pipeline is a part of the proposed energy corridor between China and Pakistan. It would allow Beijing to reduce the portion of its oil shipped through the narrow and unsafe Strait of Malacca carrying up to 80pc of its oil imports. The two countries are currently repairing the Karakoram Highway, which connects Pakistan to China, following one of the ancient silk routes along the Indus.

Iran-Pakistan-China oil and gas pipeline project is already under consideration of Beijing and Islamabad. While addressing a gathering of students and academics in Beijing, the visiting President Pervez Musharraf on 14 April had strongly favored the construction of gas and oil pipelines between Pakistan and China to bolster bilateral ties. The two countries have already explored proposals to use Pakistan as a pipeline corridor, bringing oil and gas from the Middle East to China. Musharraf had said that the gas pipeline from Pakistan's south to the Khunjerab Pass, linking the two countries, would be raised till it crossed the pass at 15,000 feet, thereafter more than half of the length would be in descent. He had proposed that the gas pipeline between Iran and India through Pakistan could be expanded to include China.


Last February, the Pakistan Railways and China's Dong Fang Electric Supply Corporation had signed an agreement for establishing rail link between Havelian and Khunjerab. On February19, 2007, Pakistan awarded Rs72 million contract to an international consortium to carry out feasibility study for establishing a rail link with China, which will boost trade relations between the two countries. By extending its East-West Railway from the Chinese border city of Kashi to Peshawar in Pakistan's northwest, China can receive cargo to and from Gwadar along the shortest route, from Karachi to Peshawar.

Strategically located opposite to the Strait of Hormuz, Gwadar is currently being developed as a gateway port for central Asia and West China. So far China has been the biggest investor, and hence the major stake-holder in the development of Gwadar port city. For its geo-strategic location, Gwadar can serve as the future petro-chemical hub meeting the oil transshipment requirements of different countries. Gwadar port can handle very large crude containers of up to 0.5 million tons dead weight, which form a crucial part of the international oil movement. For eastbound oil trade for South Asian, Southeast Asian and Asia Pacific markets, the port is emerging as the most suitable option. For every one million barrels daily outlet capacity at Gwadar, Pakistan could possibly have net over a third of a billion dollars a year in revenues besides other indirect economic benefits.