Banks in Pakistan have refused to open letters of credit (L/Cs) for Russian wheat imports for fear of the US fining them under sanctions imposed by Washington on Russia in response to its invasion of Ukraine, according to a report in the Express Tribune newspaper.

The fears seem to be prompted by fines previously imposed on Pakistani banks, such as the US federal reserve board's US$20.4 million penalty against the National Bank of Pakistan, a foreign bank operating in the US and headquartered in Pakistan, for anti-money laundering violations.

Flat refusal

Even though Washington has imposed no sanctions on Pakistan's trade with Russia, banks are nevertheless wary of opening L/Cs for Russian transactions according to the report.

The country's banks have "flatly refused to open L/Cs without making queries" according to the report that does not name its sources.

If Pakistan's banks are refusing to provide L/Cs for trade with Russia, this does not support government efforts to buy Russian wheat to compensate for its poor harvest of the grain this year due to the crop being damaged by the recent massive floods in the country.

Discounted oil deal

Last week, Pakistan's petroleum minister, Musadik Malik, visited Moscow and announced that the cash-strapped country will buy discounted Russian oil starting in 2023.

But if banks exercise the same caution in providing L/Cs for Russian oil as they do for its wheat, alternative payment methods will need to be considered.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.