Iranian President Ebrahim Raisi’s recent trip to Pakistan underscores Tehran’s commitment to diplomatic efforts and economic collaboration with Islamabad, but a problematic pipeline project may undermine relations as Pakistan grapples with either getting sanctioned by the United States or fined by Iran. Raisi visited Pakistani Prime Minister Shehbaz Sharif from April 22 to April 24, marking the first visit by an Iranian president to Pakistan in eight years. The visit sought to improve bilateral relations, which soured in January after Iran and Pakistan engaged in cross-border strikes. During Raisi’s trip, both governments expressed their commitment to transforming their shared border from a ”border of peace” to a ”border of prosperity.” Notably, both also strongly condemned Israel’s actions in Gaza, calling for an immediate cease-fire and accountability for the ”crimes” committed by Israel against Palestinians. 

• Raisi’s two-day trip to Pakistan — where he traveled to the cities of Islamabad, Karachi and Lahore — was announced shortly after Iran conducted airstrikes on Israel in response to an Israeli strike in Syria that killed two Iranian generals in an Iranian consular building. However, Pakistani officials said the visit had been planned weeks before Iran and Israel exchanged tit-for-tat strikes.
• On Jan. 16, Iran conducted a missile and drone assault on what it described as ”terrorist” targets in Pakistan. On Jan. 18, Pakistan retaliated by targeting militant facilities within Iran. Following these strikes, both countries agreed to de-escalate their conflict and collaborate on security issues. 

Raisi’s visit signals an improvement in bilateral relations, underscored by agreements to enhance economic and security cooperation and improve regional connectivity. During the visit, Raisi and Sharif pledged to collaborate in combating terrorism, narcotics smuggling, human trafficking, hostage-taking, abduction and money laundering by leveraging existing bilateral institutional mechanisms to effectively counter these threats. Additionally, they discussed expediting a free trade agreement to increase their bilateral trade to $10 billion over the next five years through joint economic projects, establishing economic free zones and opening new border crossings. They also signed eight memorandums of understanding and agreements spanning trade, science and technology, agriculture, health, culture, and judicial matters. Raisi’s visit to Pakistan and the agreements signed during his trip underscores Iran’s commitment to maintaining diplomatic efforts and continuing business as usual with other countries, even as its tensions with Israel escalate amid the ongoing war in Gaza. The trip also signals a shared desire by Tehran and Islamabad to improve bilateral ties, which have periodically been strained by occasional cross-border clashes and competing alliances. 

• The relationship between Iran and Pakistan is a blend of cooperation and tension, influenced by shared trade and energy interests, as well as friction related to militancy, as both have accused the other of supporting or ineffectively countering militant groups from carrying out border attacks. Regional rivalries and Iran’s negative perception of Pakistan’s relations with the United States, the United Arab Emirates and Saudi Arabia have also contributed to tensions between Islamabad and Tehran. Pakistan, on the other hand, sees Iran as a challenging neighbor due to its pariah status in the West and closer relationship with Pakistan’s archnemesis India, which has constrained Pakistani-Iranian economic cooperation. 

Despite improved relations, a problematic pipeline project may still cause friction between Iran and Pakistan. During Raisi’s visit, Pakistan and Iran reaffirmed the significance of energy cooperation and electricity trade, notably regarding the completion of a multi-billion-dollar gas pipeline project launched in 2010 that has since faced severe delays amid Pakistan’s hesitance to commence work on its segment of the pipeline for fear of triggering U.S. sanctions. Despite its improved relations with Tehran, Islamabad is unlikely to make substantial progress in the pipeline’s construction for two key reasons. For one, working on the Iranian gas pipeline could expose Pakistan to the sweeping sanctions the United States has imposed on Iran’s energy sector in response to the country’s nuclear activities. Such sanctions would have far-reaching implications that could significantly impact Pakistan’s economy and international standing, and any fines Iran may pose for not completing the project would likely be relatively manageable in comparison. If Iran takes Pakistan to court for failing to finish the pipeline, Tehran would also be unlikely to win the case due to the existing international sanctions against Iran, which could weaken its legal position. Second, while Iranian gas could benefit Pakistan amid its energy-related challenges, Pakistan doesn’t necessarily need such exports, as it can still source gas from its other bilateral partners like Qatar, the United Arab Emirates and Saudi Arabia. For Islamabad, the only advantage of extra Iranian gas supplied through a new pipeline would be if Tehran could guarantee a consistent supply at favorable rates, though even then, the threat of potential U.S. sanctions would persist. 

• The Pakistan-Iran natural gas pipeline, known as the Peace Pipeline, is a long-term project between Tehran and Islamabad. Hassan Nourain, Iran’s consul general in Karachi, stated that Pakistan’s 80-kilometer segment is planned to cross the Balochistan and Sindh provinces before reaching Punjab. Once completed, the pipeline is estimated to have a capacity of transporting between 750 million and 1 billion cubic feet of natural gas per day.
• Iran completed its portion of the Peace Pipeline in 2011 after investing $2 billion into the project, under the expectation that Pakistan would finish its portion shortly thereafter. But Pakistan has continuously delayed construction on its segment due to domestic financial challenges and fears of triggering U.S. sanctions. In 2014, Pakistan asked for a 10-year extension to build the pipeline, which Iran granted, though Tehran also warned it would take the matter to the International Arbitration Court in Paris and seek an $18 billion penalty if Islamabad failed to meet its obligations. That 10-year extension will expire in September of this year. Faced with this looming deadline, in February, Pakistan’s former caretaker government finally approved the commencement of the construction on its portion of the pipeline and expressed an intent to seek relief from potential U.S. sanctions. 
• When asked by reporters about Raisi’s visit to Pakistan, U.S. State Department spokesman Vedant Patel on April 24 said that ”anyone considering business deals with Iran to be aware of the potential risk of sanctions,” but reiterated that ”ultimately, the Government of Pakistan can speak to their own foreign policy pursuits.”

To avert both the threat of U.S. sanctions and financial penalties from Iran, Pakistan may finally start building its portion of the pipeline, but the project will likely continue to face delays due to funding issues. With the 10-year extension that Iran granted to start construction on the pipeline set to expire in September, the Pakistani government is being pressured to take action on the project to avoid potential legal action from Tehran. Starting work on its segment on the pipeline, however, could also expose Pakistan to U.S. sanctions at a time when Pakistan is already facing mounting economic difficulties. This is compounded by the fact that Islamabad is currently seeking financial assistance from its allies, including Saudi Arabia, the United Arab Emirates and the United States — all of which are considered rivals of Iran. As the September deadline fast approaches, Pakistan will likely aim to find a workaround that minimizes the risk of both U.S. and Iranian retaliation. One possible solution Islamabad may undertake is to complete the pipeline’s construction but refrain from purchasing gas from Iran, as the threat of U.S. sanctions primarily stems from Pakistan buying Iranian energy imports. This strategy — which would effectively see Pakistan build the pipeline without intending to use it — would coincide with a March 21 statement made by Pakistan’s Foreign Office, in which it said that since the pipeline’s construction is within Pakistani territory, it does not require an exemption from U.S. sanctions. But even if Pakistan decides to move ahead with the pipeline, construction will likely still face delays due to funding constraints for the project’s development. Indeed, cash-strapped Islamabad would probably need to secure foreign investment to help pay for the project, which would likely prove difficult as financial institutions and banks from Western and Middle Eastern countries may not lend due to U.S. sanctions on Iran.