Pakistan is once again in trouble, and in an even more troublesome situation than before. This time around, it will have to balance its relationships with Iran and the United States, a task far more complex than walking a tightrope between Sunni allies and Iran.
The focus is on the decades-old Iran-Pakistan gas pipeline project, also known as the Peace Pipeline. The 2,775km pipeline was promised to deliver between 750 million and 1 billion cubic feet of natural gas per day from Iran’s southern Pars gas field to energy-starved Pakistan for 25 years. The discussion took place over 10 years ago in 2010. His second largest proven reserves of natural gas in the world are estimated at 1,203 trillion cubic feet. Pakistan, on the other hand, is rich in natural resources but due to decades of structural mismanagement, it must import energy and power supplies. Naturally, the most logical source for such procurement is neighboring Iran.
pakistan’s plight
Iran has already fulfilled its part of the agreement, completing a 1,100-kilometer stretch from the South Pars gas field to the Pakistan border. In 2014, the deadline was extended by 10 years at Pakistan’s request. It is scheduled to conclude in September this year, but Pakistan is yet to complete part of the pipeline. Global sanctions against Iran and the resulting geopolitical pressure on Pakistan are the main reasons for this severe delay.
Iran and Pakistan have long had a volatile relationship, with tensions heightened by Iran’s close ties with regional rivals Saudi Arabia and the UAE, as well as Pakistan’s geopolitical and economic dependence on the United States. Iran has frequently accused Pakistan of inciting terrorism in the border region of Sistan-Baluchistan and helping to weaken the Taliban. Discrimination against Pakistan’s Shiite minority has been a source of increasing friction for years. Nevertheless, given Islamabad’s standoff with India on its eastern border, Pakistan has taken care from time to time to adopt a more conciliatory attitude towards Iran. For example, Pakistan’s refusal to send troops to Yemen to support the Saudi-led Sunni coalition was largely due to this factor.
tit-for-tat strike
However, things recently came to a head after Iran and Pakistan launched retaliatory attacks on each other in January to pre-empt the “terrorists”. Immediately after the airstrike, Iranian Foreign Minister Abdollahin visited Islamabad as a sign of reconciliation. These attacks were carried out against a backdrop of rising tensions in the Middle East over the Israel-Hamas war and disruption of shipping routes by Iranian-backed Houthi militias. The Iranian government feared that Pakistani territory could be used for attacks by the United States, just as it had been used to target the Soviet Union and later the Taliban during the Afghan jihad. I was wondering if there was.
In that context, Iranian President Ebrahim Raisi’s recent visit to Pakistan can also be seen as an attempt to smooth out ruffled feathers. During the visit, the two countries signed six economic agreements and pledged to increase trade beyond the current meager $2 billion. A joint statement issued during the visit included plans for cooperation in the energy field, including pipeline projects.
penalty blues
Although tensions with Iran appear to have eased for now, the question that currently looms large for Pakistan is whether to proceed with the pipeline or face the threat of penalties. According to reports, the Iranian government has given Pakistan an ultimatum to complete the pipeline section by 2024 or face an economic impact of nearly $18 billion.
For the past two years, Pakistan has experienced an inflation rate of over 20% compared to the previous year. According to the Pakistan Bureau of Statistics, production in large enterprises has shrunk significantly over the past two years, resulting in high levels of unemployment. Domestic coal and gas prices have increased significantly, hitting electricity supply. Against this backdrop, Iran’s ultimatum is even more of a nightmare.
american pressure
In February this year, Pakistan’s interim government approved the construction of the first phase of the 80km pipeline (780km in total) from the Iranian border to Gwadar. But the United States reacted quickly. Last month, Donald Lew, the US assistant secretary of state for South and Central Asia, warned Pakistan against importing gas from Iran, warning that this would invite US sanctions. A Pakistani foreign ministry spokesperson said this was an “internal” issue, but it remains to be seen whether Pakistan can withstand US pressure.
The US is Pakistan’s largest export market. In 2021, it purchased over $5 billion worth of Pakistani products. The United States has also been a major investor in Pakistan for the past two decades. In August last year, the two countries signed the Memorandum of Communications Interoperability and Security Agreement (CIS-MOA), which covers joint exercises, operations, training, bases and equipment, and sales of military equipment to Pakistan. Last year, it was the United States that helped facilitate a much-needed $3 billion bailout loan from the International Monetary Fund (IMF), which helped Pakistan avoid defaulting on international payments. The last tranche of this package was released on April 30th. Pakistan is also aiming to secure a larger long-term package from the IMF.
Another complication
There are other dimensions as well. Besides tensions over Pakistan’s nuclear program and Iran’s involvement in the Middle East conflict, what’s renewing Iran-US relations is Iran’s support for Russia’s war in Ukraine and drone sales to Russia. That’s what I’m doing. Even though Pakistan is facing a serious energy crisis, it has been unable to tap into Russia’s heavily discounted crude oil precisely because of US pressure.
The question now is whether Pakistan, with so much at stake, is in a position to jeopardize its relationship with the United States over the peace pipeline.
Over the years, as Pakistan-US relations became strained for various reasons (Afghanistan being the most important), Islamabad turned to its traditional patrons, China, Saudi Arabia, and the UAE. However, relations with the latter two have also frayed due to Yemen. Although some damage has been contained, it is questionable whether the two countries will be able to provide the necessary assistance in case Pakistan moves forward with the pipeline, and in the event of subsequent U.S. sanctions.
China factor
Meanwhile, China is playing a leading role in Pakistan’s economy through the $62 billion China-Pakistan Economic Corridor (CPEC). However, CPEC, which traverses Balochistan and Khyber Pakhtankhwa provinces, has been mired in challenges including opacity and allegations of looting of local resources, inability to create local jobs, widespread local resentment, and attacks by armed groups. In terms of trade, China is Pakistan’s second largest partner, but the equation is heavily skewed towards China. According to 2022 data, China’s exports to Pakistan were $21 billion, while imports from the country were only $2.79 billion. According to the IMF, Pakistan owes China $6.7 billion in commercial loans and faces a serious debt trap. Therefore, it is unclear to what extent China will be able to help Pakistan, and China is busy with an escalating trade war with the US and fighting secondary sanctions on trade with Russia. .
Iran has promised to support Pakistan with expertise and know-how for the construction of the pipeline. In response, Pakistan said it would apply to the United States for sanctions relief. The latter has already made it clear that such engagement with Iran would invite sanctions, so Pakistan could either abandon the pipeline and impose a lighter fine, or pivot eastward and try to secure guarantees. It could be either. From China, Russia, Iran, and their Gulf allies.
Although it is difficult to predict what will actually happen, it is true that Pakistan is once again in an enviable position.
(Aditi Bhaduri is a journalist and political analyst)
Disclaimer: These are the author’s personal opinions.
