Foreign banks suspend trade credit for oil imports from Pakistani companies

Karachi, May 26 (IANS): Foreign banks have stopped offering trade credit for oil imports to Pakistani refineries, and some suppliers are asking for payment in advance to avoid potential problems arising from the political stalemate in the country, media reported.

They said politically tense Pakistan was set to face fuel shortages in the coming days as international banks refused to confirm letters of credit (LCs) for oil import orders, citing a “high country risk” alert, reported The News.

For the import of crude oil from the world market, LCs are opened by local banks. However, international banks confirm local partners’ letters of credit to provide a guarantee to the exporter. Under the guarantee, if a Pakistani bank defaults on payment to an exporter, its international counterparty pays the amount.

“Political unrest has increased the country’s risk in the eyes of international banks and they are reluctant to confirm LCs,” an oil industry source told The News.

The source said a near stalemate in Pakistan’s talks with the International Monetary Fund (IMF) had also complicated the situation.

“The standoff has created a serious credibility crisis for the country in the global marketplace.

Sources pointed out that following Sri Lanka’s default, an overall negative environment has emerged in Pakistan, being seen as the next country heading towards default after a severe balance of payments crisis and huge erosion. foreign exchange reserves, reported The News.

“This situation has not only severely shaken Pakistan’s credit rating, but it has also added to the country’s risk, especially for the confirmation of LCs.”

Sources said refineries and Petroleum Marketing Companies (OMCs) are in serious trouble.

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