The United States and Pakistan have finalized a trade and energy pact that could reshape both nations’ approach to energy cooperation and strategic alignment. Announced on Wednesday by President Donald Trump, the agreement includes U.S. participation in developing Pakistan’s oil reserves and a substantial reduction in tariffs on Pakistani exports to the U.S.
The new deal lowers the U.S. tariff rate on Pakistani goods from 29% to 19%, offering critical relief to one of the world’s largest textile exporters. According to the Pakistan Bureau of Statistics, Pakistan posted a $3 billion trade surplus with the United States in 2024, with more than 80% of its exports to the U.S. consisting of textiles and garments. Washington is Pakistan’s largest export market, accounting for over 17% of the country’s total exports.
“We have just concluded a deal with the country of Pakistan, whereby Pakistan and the United States will work together on developing their massive oil reserves,” Trump wrote on Truth Social. “We are in the process of choosing the Oil Company that will lead this partnership. Who knows, maybe they’ll be selling Oil to India someday!”
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Pakistan’s deputy prime minister Ishaq Dar confirmed the deal on X, but offered no further details. The agreement is being framed in Islamabad as part of a broader economic reset, aimed at deepening bilateral ties and addressing Pakistan’s chronic energy vulnerabilities.
Pakistan imports more than 85% of its crude oil, according to the State Bank of Pakistan, and crude remains its single largest import category. In the fiscal year ending June 2025, the country spent $11.3 billion on crude oil imports, nearly one-fifth of its total import bill. That level of dependency has left the economy exposed to global price shocks and dollar liquidity crises.
Trump’s reference to “massive” reserves may be more political than geological. A 2015 study by the U.S. Energy Information Administration estimated Pakistan had 9.1 billion barrels of technically recoverable shale oil. But more recent estimates of conventional proven oil reserves range between 234 million and 353 million barrels, placing Pakistan in the lower half of global rankings. Daily production of crude and condensate averages just 60,000 barrels, well behind regional peers such as India, which produces more than 1 million barrels per day.
Nevertheless, the government views American involvement as a breakthrough. In a statement following Trump’s announcement, Pakistan’s finance ministry said, “This deal marks the beginning of a new era of economic collaboration especially in energy, mines and minerals, IT, cryptocurrency and other sectors.”
The capital investment required to tap Pakistan’s reserves is substantial. In a public briefing last year, Energy Minister Mohammad Ali stated that Pakistan would need between $25 billion and $30 billion over the next decade to develop even 10% of its estimated 235 trillion cubic feet (TCF) in gas reserves, enough, he said, to stem production declines and reduce reliance on imported LNG. No U.S. company has yet publicly confirmed interest in taking the lead.
Foreign participation in Pakistan’s oil and gas sector has remained tepid in recent years. A 2023 auction of 18 onshore and offshore exploration blocks failed to attract significant international bidders. In June 2023, Shell Plc (NYSE:SHEL) announced its exit from the country, selling its downstream assets to Saudi Aramco in a move that reflected growing risk aversion.
Security remains a major concern. Several energy and infrastructure projects under the China-Pakistan Economic Corridor (CPEC) were suspended in 2024 following terrorist attacks on project sites in Balochistan and Khyber Pakhtunkhwa. While CPEC has delivered over $25 billion in investment and added 6,000 megawatts to the national grid, it has also driven up Pakistan’s external debt, which now stands at $100 billion, according to the Ministry of Finance.
Roughly one-third of that debt is owed to China. The World Bank estimates that nearly half of Pakistan’s 250 million people live below the poverty line. Inflation, especially in food prices, has remained stubbornly high, with domestic purchasing power steadily eroding over the past two years.
Beyond the U.S. deal, Pakistan has been actively courting other partners. In April 2025, it signed a memorandum of understanding with Turkey to explore offshore oil and gas in Pakistani waters. The country is also expanding domestic exploration. In July, state-owned Oil and Gas Development Company Limited (OGDCL) and Pakistan Oilfields Limited (POL) announced successful testing at the Makori Deep-03 development well in the Tal Block, yielding 22.08 million standard cubic feet per day (MMSCFD) of gas and 2,112 barrels of condensate. Production is slated to begin by September, offering a rare short-term boost to domestic output.
The terms of Washington’s prospective involvement, whether through direct financing, technology transfer, or private sector participation, have yet to be finalized. But Islamabad is positioning the agreement as a move away from overreliance on Chinese capital and toward a more balanced foreign investment strategy.
Pakistani officials likewise have yet to confirm whether the agreement includes upstream investment, technical assistance, or equity participation by U.S. firms. No American company has publicly expressed interest, and Islamabad has not announced a bidding process or operator selection timeline. At this stage, the deal appears to be a political signal rather than a commercial commitment.
Notably, Trump’s public statement that this could lead to Pakistan exporting oil to India one day is likely intended as another warning to New Delhi over its Russian crude imports. Trump has previously used energy cooperation as a geopolitical lever, applying pressure on countries that maintain oil ties with Russia and Iran. India, which has steadily increased its imports of discounted Russian crude since 2022, has already faced tariff threats from Washington. By positioning Pakistan as a potential beneficiary of U.S. energy support, while hinting at regional exports, the administration may be testing New Delhi’s diplomatic posture or signaling dissatisfaction with its current alignment.
By Alex Kimani for Oilprice.com
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