Opinion: Opinion | Iran Pipeline, US Curbs: How An Energy Deal Became Pakistan’s Bane

Pakistan is once again caught in a bind – and a knottier one than what it has had to contend with in the past. This time around, it needs to balance its relations with Iran and the US, a task much more complex than walking the tightrope between its Sunni allies and Iran. 

In the spotlight is the decades-old Iran-Pakistan gas pipeline project, also known as the Peace Pipeline. The 2,775-km pipeline, which promised to supply around 750 million to a billion cubic feet of natural gas per day for 25 years from Iran’s South Pars gas field to energy-starved Pakistan, was mooted more than a decade ago in 2010. Iran has the world’s second-largest proven natural gas reserves, estimated at 1,203 trillion cubic feet. On the other hand, Pakistan, with abundant natural resources but decades of structural mismanagement, has to import its energy and power supplies. Neighbouring Iran is naturally the most logical source for such procurement.

Pakistan’s Quandary

Iran has already fulfilled its part of the agreement by completing a 1,100 km section from the South Pars gas fields to the Pakistan border. In 2014, on Pakistan’s request, it extended the deadline by a decade. That is set to end in September this year, and Pakistan is yet to complete its part of the pipeline. The global sanctions against Iran and the resultant geopolitical pressure on Pakistan are the main reasons for this severe delay.

Iran and Pakistan have had uneasy relations for years, strained in part by the latter’s close ties with Saudi Arabia and the UAE, Iran’s rivals in the region, as also by Pakistan’s geopolitical and economic dependence on the US. Iran has frequently blamed Pakistan for fomenting terrorism in its border regions of Sistan-Baluchistan and of nurturing the Taliban to weaken. Discrimination against the Shia minority in Pakistan has added to the friction over the years. Nonetheless, from time to time, Pakistan has taken care to strike a more conciliatory tone towards Iran given Islamabad’s rivalry with India on its eastern borders. For instance, Pakistan’s refusal to send troops to Yemen in support of the Saudi-led Sunni coalition was majorly due to this factor.

The Tit-For-Tat Strikes

But things came to a head recently after the tit-for-tat strikes in January that Iran and Pakistan carried out against each other to preempt “terrorists”. Soon after the strikes, Iranian Foreign Minister Abdolahein visited Islamabad as a gesture of reconciliation. These attacks had come against the backdrop of heightened tensions in the Middle East over the Israel-Hamas war and the disruption of shipping lines by the Iran-backed Houthi militias. Tehran’s fear was that Pakistan’s territory might be used by the US to attack it, just as it had been used in the past to target the Soviet Union during the Afghan jihad, and later, the Taliban.

In that context, the recent Pakistan visit of Iranian President Ebrahim Raisi can also be seen as a bid to smooth ruffled feathers. During the visit, both sides inked six economic agreements, vowing to take trade beyond the current volume of a paltry $2 billion. A joint statement issued during the trip included plans for cooperation in the energy domain, including the pipeline project.

Penalty Blues

While tensions with Iran seem allayed for now, Pakistan’s headache is now the question of whether to move ahead with the pipeline or face the threat of penalty. According to reports, Tehran has issued an ultimatum to Pakistan to finish the pipeline segment by 2024 or incur financial repercussions amounting to nearly $18 billion.

In the past two years, Pakistan has experienced inflation rates exceeding 20% on a year-on-year basis. According to the Pakistan Bureau of Statistics, big industry production has contracted significantly over the last two years, resulting in high levels of unemployment. Domestic coal and gas prices have risen considerably, hitting power supply. Against these circumstances, Iran’s ultimatum is an added nightmare.

American Pressure

In February this year, the caretaker government in Pakistan approved the construction of the first phase of the pipeline, which would comprise an 80 km line (of a total of 780 km) from the Iranian border to Gwadar. However, the US responded swiftly. Last month, Donald Lu, the US Assistant Secretary of State for South and Central Asia cautioned Pakistan against importing gas from Iran, warning it that this would invite US sanctions. While the Pakistani Foreign Office spokesperson has said this is an “internal” matter, it remains to be seen whether Pakistan can withstand US pressure.

The US is Pakistan’s largest export market; it bought Pakistani goods worth more than $5 billion in 2021. America has also been a leading investor in the country for the past 20 years. Last year in August, the two countries signed the Communication Interoperability and Security Memorandum of Agreement, or CIS-MOA, which covers joint exercises, operations, training, basing and equipment, as well as sales of military hardware to Pakistan. Last year,  it was the US that helped facilitate a much-needed $3 billion bailout loan from the International Monetary Fund (IMF), which helped Pakistan avoid a default on its international payments. The final tranche of this package was released on April 30. Pakistan is also looking to secure a bigger longer-term package from the IMF.

Another Set Of Complications

There are other dimensions too. Besides tensions over Pakistan’s nuclear programme and Iran’s involvement in the conflict in the Middle East, a fresh irritant in Iran-US relations is the Iranian backing for Russia’s war in Ukraine and its sale of drones to Moscow. Despite the debilitating energy crisis Pakistan is facing, it has been unable to take advantage of Russia’s heavily discounted crude oil precisely because of the US pressure.

The question now is whether Pakistan, which has so much at stake, is in a position to risk its relations with the US over the Peace Pipeline. 

Over the years, as Pakistan’s relations with the US came under strain for a variety of reasons – Afghanistan is among the more significant of which – Islamabad turned towards China, and Saudi Arabia and the UAE, its traditional patrons. However, ties with the latter two have also frayed due to Yemen. While there has been some damage control, it is doubtful whether the two countries will be able to provide the succour Pakistan may need in case it goes ahead with the pipeline, and consequently, the US sanctions that may come with it.

The China Factor

China, meanwhile, plays the lead role in the Pakistani economy with its $62-billion China-Pakistan Economic Corridor (CPEC). However, running through Balochistan and Khyber-Pakhtunkhwa Province, the CPEC has been mired in challenges like allegations of opaqueness and plundering of local resources, inability to generate local employment, widespread local resentment, and militant attacks. Trade-wise, China is Pakistan’s second-largest partner, but the equation is heavily skewed in favour of Beijing. Data from 2022 reveals that while China’s exports to Pakistan stood at $21 billion, its imports from there were just $2.79 billion. According to the IMF, Pakistan owes $6.7 billion in commercial loans to China and is thus staring at a deep debt trap. Hence, to what extent China would be able to help Pakistan is also uncertain, busy as it is in an ever-escalating trade war with the US as well as fighting secondary sanctions for its own trade with Russia.

Iran has promised to help Pakistan with expertise and know-how for building the pipeline. Pakistan, in turn, has said it would apply for a sanctions waiver from the US. With the latter already having laid down that any such engagement with Iran would invite sanctions, Pakistan may either have to give up on the pipeline and cough up a watered-down penalty – or it may try to pivot to the East and try to secure guarantees from China, Russia, Iran, and its Gulf allies.

It’s hard to predict what will actually happen, but the fact is that Pakistan is in an unenviable position, again.

(Aditi Bhaduri is a journalist and political analyst)

Disclaimer: These are the personal opinions of the author