Editor’s Note
The Iran-Pakistan gas pipeline has remained a pipedream for both countries. India, initially a part of the architecture, has ultimately backed out. However, the Iranians have completed their portion and threatened Pakistan with a $20 billion penalty. Pakistan has promised to give it a start by carving out $158 million from its already tanked economy. The US’s interest in stalling the project is not just political but also commercial. The article provides a detailed view of the issue.
After a turbulent start to the new year, marked by missile exchanges between Pakistan and Iran, the two neighbouring countries have embraced diplomacy to de-escalate tensions and enhance bilateral relations. During President Raisi’s maiden visit to Pakistan, the discussions revolved around reducing tensions and fostering economic collaboration, including progress on the long-delayed Iran-Pakistan (IP) Gas Pipeline Project. A joint statement issued at the end of the visit affirmed, “We will find a way to complete it,” signalling a renewed commitment to this crucial energy project.
The Iran-Pakistan (IP) Gas Pipeline has encountered numerous setbacks due to geopolitical tensions and financial challenges. Despite Iran completing its segment of the 1,900-kilometer (1,180-mile) pipeline after investing $2 billion, Islamabad has hesitated to proceed for over a decade, largely due to concerns about U.S. sanctions against Iran. The Gas Sales and Purchase Agreement, signed between Pakistan and Iran in 2009, aimed to deliver approximately 1 billion cubic feet per day of gas from Iran’s South Pars Field to Pakistan. Initially, the project included India, but New Delhi eventually withdrew.
The project’s inauguration in March 2013 in Iran was marked by significant fanfare. Pakistan’s then-President Asif Ali Zardari and Iran’s then-President Mahmoud Ahmadinejad celebrated the event as a pivotal moment that signalled a move away from U.S. influence in the region. This period was characterised by President Zardari’s bold stance against the prevailing U.S. influence over Pakistan’s strategic decisions. In January of the same year, Pakistan’s cabinet approved the transfer of Gwadar Port from Singapore’s PSA International to Chinese Overseas Port Holdings Limited.
Pakistan was expected to complete its segment of the Pipeline by 2024. However, Tehran has threatened Islamabad with a $20 billion penalty if it fails to finish the project. While Pakistan is authorised to construct the Pipeline on its territory, it requires a waiver from the U.S. to activate the Pipeline and transport natural gas from Iran.
In late February of this year, Pakistan’s caretaker government allocated $158 million to construct the first phase of the IP gas pipeline project. This phase extends from the Iranian border to the strategic port of Gwadar in southwestern Balochistan province.
The extent to which Pakistan will advance with the project remains a concern for Iran. Pakistan’s ability to fulfil the project is hindered by a need for both autonomy in decision-making and necessary funds. The country’s struggling economy heavily relies on loans from the International Monetary Fund (IMF), which adds another layer of complexity to its commitment to the pipeline project. At the beginning of this year, the IMF’s executive board approved a disbursement of around $700 million to Pakistan after thoroughly reviewing the country’s economic reform program. Under the nine-month Stand-By Arrangement (SBA), the IMF has committed $3 billion to Pakistan. The question remains: Will the IMF consider building the pipeline a sound economic policy?
Even if Islamabad successfully completes the project’s first phase, the difficulties are far from over. Gaining American approval to import gas from Iran will be a formidable task, given Pakistan’s reliance on the United States, which limits its ability to act against American preferences. Following President Raisi’s visit, the U.S. State Department has reiterated its warning to Islamabad about proceeding with the pipeline.
The American opposition to the project is not just strategic but also commercial. Beyond a strategic reluctance to see Iran benefit, the U.S. aims to promote its liquefied natural gas (LNG) exports, which adds another layer of complexity to Pakistan’s decision-making process regarding the pipeline.
Earlier in 2022, the Biden administration withdrew its support for the proposed EastMed natural gas pipeline – a €6 billion project intended to transport gas from deposits offshore Israel and Egypt through a 1,250-kilometer pipeline running via Cyprus and Greece to European markets. The project has been cancelled.
The U.S. opposition to the Nord Stream pipeline, which connects Russia and Europe, is widely recognised. However, a lesser-known fact is the aftermath of the Nord Stream 2 pipeline sabotage. Seymour Hersh, a prominent American journalist, has alleged that Americans and Norwegians carried out this act of sabotage. Following this incident, U.S. natural gas exports to Europe have seen a significant increase. According to an article in the Yale Review of International Studies, 74% of American natural gas exports were directed to Europe last year, up from 34% in 2022.
The central issue is that the United States, now the world’s largest oil and natural gas producer, opposes land-based energy supply lines, favouring maritime routes. This strategy involves actively disrupting existing energy networks and forging new ones to tap into new markets for its natural gas exports.
Conversely, while America promotes strategies like ‘near-shoring’ and ‘friend-shoring’ to shorten supply lines, it resists similar efforts by countries in the Global South to enhance their cross-border trade. This approach is particularly challenged in the era of renewable energy. For instance, in Pakistan, the falling prices of solar energy products are gradually increasing the share of renewables in its energy mix. This shift is likely to deepen Islamabad’s reliance on Beijing over the next decade as China continues to lead in producing cost-effective solar panels.
American policies are causing friction with its allies in West Asia and with many in Central Asia looking for ways to counterbalance the rising influence of China and Russia in the region. However, Ebrahim Raisi’s recent visit to Pakistan and Pakistan’s commencement of work on the IP pipeline is expected to bring significant change. American influence, both hard and soft, remains deeply entrenched in the region. Given Pakistan’s substantial dependence on the United States, it is unlikely to join other nations of the ‘Global South’ in challenging Western dominance in global affairs.
Dr. Atul Bhardwaj
