To build or not to build the ‘peace pipeline’… Syed Mohammad Ali
Despite dwindling local gas reserves, and the soaring domestic demand for gas, Pakistan has not yet been able to operationalise its part of a gas pipeline project with Iran. Given the growing animosity between the US and Iran, Pakistan is unlikely to avert American sanctions, if it decides to proceed with this longstanding deal with Iran.
The idea of importing Iranian gas via a pipeline began being discussed back in the mid-1990s. Iran then wanted to build a gas pipeline to India via Pakistan, and it even signed a preliminary agreement with India to this effect in 1999. Despite some meetings to negotiate prices and other modalities, no real progress was made on formalising the tripartite deal over the next decade.
After India had signed a nuclear deal with the US in 2008, it decided to formally withdraw itself from the tripartite pipeline project. The US also began pressuring Pakistan to follow suit, and it tried enticing Pakistan with support to construct a liquefied natural gas terminal, and to import gas from Tajikistan through Afghanistan. Yet, the deteriorating security situation in Afghanistan, and the cost of importing gas from further away, prevented Pakistan from abandoning the idea of buying gas from Iran.
In 2014, Pakistan asked for a 10-year extension to build the Iran-Pakistan pipeline, but this deadline expired in September last year. Fearing a potential fine, Pakistan’s caretaker administration gave a go-ahead to build an 80 km segment of the pipeline. However, progress on even this modest plan was stalled.
Iran is understandably frustrated with Pakistan, and it has filed an arbitration appeal in a Paris-based international court seeking damages. Pakistan has already been embroiled in years of legal wrangling over breaching a contract over the copper and gold mine at Reko Diq. Given the fragile state of its economy, Pakistan is in no position to pay Iran billions of dollars in damages. However, Pakistan is caught between the devil and the deep blue sea.
Pakistan’s relations with the US are also on thin ice at present. It is quite likely that the current US administration will place sanctions on Pakistan if it tries doing business with Iran, which in turn would make it difficult for Pakistan to continue borrowing money from international lenders, including the IMF and the World Bank.
Whether Pakistan will be able to convince Iran to put the much-delayed gap pipeline project in cold storage again remains to be seen. On the one hand, Pakistan has signed ambitious agreements with Iran aiming to increase bilateral trade to $10 billion in the next five years. On the other hand, Pakistan has engaged high-profile American litigators to represent its case at the International Court of Arbitration to avert being fined for reneging on its bilateral deal with Iran.
Pakistan faces the dilemma of trying to address its desperate domestic gas demand needs and facing the risk of sanctions which could again bring it to the brink of default. Given this difficult situation, trying to renegotiate prices for increasing import of liquefied natural gas from Qatar and other countries may be the most practical option for partially addressing Pakistan’s gas needs for the foreseeable future at least.