Kuwait and Saudi Arabia have turned down Pakistan's requests to supply oil on long-term credit.

Pakistan had asked the Gulf countries for oil on these terms because it is having difficulties raising letters of credit (L/Cs) or paying for fuel imports on shorter-term credit.

Payment terms

Last year, Pakistan asked Saudi Arabia to extend its credit term for oil payments from 30 days to one year or revive the free oil facility that the Kingdom provided for Pakistan in 1998.

The free oil facility was made available when the US and European nations imposed economic sanctions on Pakistan because of its nuclear testing programme.

Negative responses

Saudi Arabia has rejected these requests, saying that it will now only supply oil on a commercial basis and that preferential terms for one country could jeopardise its relations with other countries.

Pakistan has also asked Kuwait to extend its credit terms for oil payments from two to six months, a request that has yet to yield a positive response from the Gulf state.

L/C difficulties

The requests for assistance from Kuwait and Saudi Arabia result from difficulties Pakistan has had raising L/Cs to pay for oil from Iran because of international sanctions preventing financial institutions worldwide writing L/C business with the Islamic republic.

Pakistan has also tried without success so far to utilise L/Cs in long-term measures to cure the problem of inter-corporate circular debt that is currently choking energy sector financial flows. (DC World News, 3 November 2011)

The debt problem centres on Pakistan State Oil, the country's main oil importer, which is routinely owed so much money by its customers that it struggles to meet its payment obligations for oil imports.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.