US-Pakistan Oil Trade Deal
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General Studies Paper III: Effect of Policies & Politics of Countries on India’s Interests, Growth & Development |
Why in News?
The United States has recently entered into a fresh energy partnership with Pakistan, aiming to establish a new oil trade route outside traditional suppliers. This deal marks a shift in their energy and economic ties.
Key Features of US-Pakistan Oil Trade Deal 2025
- In July 2025, the United States and Pakistan signed a major oil exploration and trade agreement.
- It grants the U.S. access to vast natural resources in Pakistan while offering economic and strategic support to Islamabad.
- The agreement aims to jointly explore and extract Pakistan’s massive offshore oil and gas reserves, discovered in 2024.
- According to early geological surveys, the deposits are estimated to be among the fourth largest globally, containing oil, gas, copper, gold, and coal valued at $6–8 trillion.
- A U.S.-based energy firm will lead this joint venture, with operations expected to begin by early 2026.
- The deal includes technology transfer, investment in drilling infrastructure, and training programs for Pakistani engineers. In return, the US will receive a major share of the output from these reserves.
- The deal is expected to generate up to $20 billion in revenues annually once full-scale operations begin, projected by late 2027.
Impact of the US-Pakistan Oil Trade Deal
- United States: The United States will gain direct access to Pakistan’s unexplored oil and gas reserves, discovered in 2024. These reserves are estimated to be worth 6 to 8 trillion US dollars. This will strengthen the U.S. position in global energy markets. This will generate jobs and increase U.S. revenues from foreign energy projects. Washington is actively working to diversify its energy imports by decreasing its reliance on oil from the Middle East.
- Pakistan: Pakistan will receive technology, investment, and strategic support from the U.S. Pakistan faces economic pressure due to its heavy reliance on foreign energy, importing a majority of its oil and nearly a third of its natural gas. This deal will help Pakistan tap into its own reserves and reduce dependence on imports. This will create jobs and transfer technical knowledge. This will support economic stability and reduce its trade deficit.
- India: India faces indirect pressure from this agreement. The U.S. imposed a 25% tariff on Indian exports from August 1, 2025. Trump linked this step to India’s trade imbalance and BRICS membership. The oil deal weakens India’s regional energy edge. India may have to adjust its foreign and trade policies. If Pakistan increases energy exports, India may face higher competition in regional markets. India’s energy security may also be affected if global oil prices shift due to this deal.
- China: China views the deal as a challenge to its Belt and Road Initiative. China has invested billions in Pakistan through the China-Pakistan Economic Corridor (CPEC). U.S. entry into Pakistan’s energy sector may reduce China’s strategic influence. This could create friction in the region. The deal adds a new dimension to the ongoing U.S.-China rivalry in Asia.
Also Read: Eu Sanction on Indian Refinery
India’s Oil Trade Deals with Other Countries
- India-Russia Oil Deal: India increased oil imports from Russia after the Russia-Ukraine conflict began in 2022. Russian oil became India’s top crude oil source in 2023, replacing Iraq. India paid for Russian crude in local currencies to avoid Western sanctions. This strengthened energy security and helped reduce the import bill.
- India-Iraq Oil Trade Agreement: India has a long-standing oil supply agreement with Iraq, which was its largest crude supplier before 2023. Indian companies like IOC and BP signed annual contracts with Iraq’s SOMO (State Organization for Marketing of Oil). Indian refineries are optimized to process specific crude varieties like Basra Light and Basra Medium, making these grades essential in its oil sourcing strategy.
- India-UAE Strategic Petroleum Reserve Partnership: In 2021, India and the United Arab Emirates (UAE) deepened their energy partnership through strategic oil storage agreements. Abu Dhabi National Oil Company (ADNOC) was the first foreign company allowed to store crude in Indian reserves at Mangalore. India gained emergency access to stored oil while the UAE benefited from re-export flexibility.
- India-Saudi Arabia Oil Supply Pact: Saudi Arabia remains a key energy ally for India, with long-term supply agreements in place through Indian firms and Saudi Aramco to maintain consistent deliveries. Saudi Arabia provided nearly 18% of India’s crude oil imports in 2023. India also explored investment options with Aramco in refining and petrochemicals.
- India-US Crude Oil Purchase Deal: India began importing crude oil from the United States in 2017. Since then, bilateral energy trade has expanded rapidly. By 2024, India had signed contracts with multiple U.S. Crude oil extracted from U.S. shale reserves is transported from American Gulf Coast ports directly to Indian processing facilities. suppliers, including ExxonMobil and Chevron.
Also Read: India’s Strategic Diplomacy Amid West Asia’s Tensions
India Oil Export and Import (2024–2025)
- India is the third-largest oil consumer in the world. It depends heavily on crude oil imports to meet over 85% of its domestic demand.
- India imported around 242.4 million metric tonnes (MMT) of crude oil in FY25 (April 2024 – March 2025). This amount rose by 4.2% from 232.7 MMT in FY24.
- India’s crude oil imports in fiscal year 2024–25 reached an average of 4.88 million barrels per day, marking a notable 5% rise over the previous year’s figures.
- India domestic crude production slipped slightly. It fell from 29.4 MMT in FY24 to 28.7 MMT in FY25.
- By 2024, Russia had become India’s most significant crude oil supplier, accounting for approximately 36% of the country’s total oil imports. It remained India’s top supplier at around 1.76 million bpd.
- Iraq supplied about 20%, Saudi Arabia about 13%, and the UAE about 9%. The United States ranked fourth, supplying around 3.5% of total imports in 2024.
- India exported petroleum products in FY25 but at lower volume. Q1 of FY26 (April–June 2025) saw a 3% volume drop and nearly 22% value drop compared to Q1 FY25.
- India’s expenditure on oil and petroleum imports climbed to an estimated $161 billion during FY25, reflecting growing demand and import volume. This was a rise from $156.3 billion in FY24.
- India consumed about 239.2 MMT of oil in FY25, up 2.1% from FY24, which was 234.3 MMT.
- High‑speed diesel demand rose 2.0%, petrol demand grew 7.5%, and LPG use increased by 5.6%.
