Drilling Down On the Iran – Pakistan Pipeline

Via Foreign Policy, a report on the Iran-Pakistan gas pipeline project:

The controversial Iran-Pakistan (IP) gas pipeline has become an increasingly problematic issue in the vacillating U.S-Pakistan relationship. The United States has strongly condemned the project, but such rhetoric seems only to have made Pakistan more determined to continue with it. An energy agreement between Iran and Pakistan would be detrimental to U.S efforts to isolate Iran and force the shutdown of its nuclear program. And while it could potentially alleviate Pakistan’s energy crisis, the proponents of the project seem more interested in defying the West than inquiring about its ‘real’ benefits.

Pakistan is crippled by an energy crisis that causes power outages for hours, daily, leading to violent protests around the country, such as those in Lahore last week. Many do not have gas for heating or cooking purposes, and electricity outages affect schools, hospitals, businesses and industries, bringing an already dwindling economy to a halt. In such a scenario, Pakistan is forced to look elsewhere to meet its needs.

The IP gas pipeline is one such prospect. The idea, conceptualized in 1990 with negotiations starting in 1994, is to construct a pipeline that would pass solely between the two countries. As the prospect developed, India entered the game, and the Iran-Pakistan-India pipeline — popularly known as the “Peace Pipeline” — came into existence. In 2008, however, India signed a civil nuclear power deal with the U.S and pulled out of the project; many analysts accused it of succumbing to American pressure.

On March 16, 2010, Iran and Pakistan signed an agreement on the pipeline during a meeting in the Turkish capital city of Ankara. The revised pipeline, with a projected cost of $1.5 billion, would start from the South Pars gas field in Iran’s southern city of Asalouyeh and pass through Bandar-Abbas and Iranshahr, until it reaches Khuzdar, Balochistan. At Khuzdar, a section is planned to extend to Karachi while the rest of the pipeline would continue through Sui to Multan.

In July 2011, Iran claimed that it had almost completed 900 km of its construction of the 56 inch diameter pipeline, though this assertion remains unconfirmed. Pakistan is to lay 781 km of the pipeline in its territory, and the project is expected to be completed by December 2014. Although completion remains two years away, Pakistan views this project as a medium-term investment to pull it out of a crippling energy crisis. Iran has also expressed its commitment to alleviating Pakistan’s woes, and once operations begin it will provide 750 million cubic feet of gas per day for 25 years.

Pakistan can no longer depend on domestic resources to address its crippling energy problems. During the third Afghanistan-Pakistan-Iran trilateral summit held on February 16, 2012, turning to Iran, Pakistan has reiterated its commitment to the IP gas pipeline project, a 1,000-megawatt electricity transmission line, and a 100-megawatt power supply from Gwadar to meet Pakistan’s energy woes. In return, Iran has offered to enhance bilateral trade to $10 billion by importing specific commodities such as rice and wheat, in the following few months. But, it is difficult to predict whether such bold developments will ever actually be implemented.

The United States, meanwhile, supports an alternate gas pipeline — known as the TAPI pipeline because it would run through Turkmenistan, Afghanistan, Pakistan and India. The TAPI pipeline project has, however, been rejected by Pakistan for a number of reasons. It will take much longer to materialize, will pass through treacherous and unreliable terrain, and involves too many regional players — specifically India and Afghanistan — which Pakistan views with suspicion.

The TAPI pipeline would flow through war-torn Afghanistan, and until the end game there is clear, Pakistani authorities, justifiably, are not ready to take such a risk on their energy survival. The situation recently grew more complicated when Afghanistan hinted at possibly withdrawing from the project. Though the final round of the TAPI negotiations are to be held on April 19, if Afghanistan does indeed withdraw from the project, America’s proposal of a viable alternate to the IP gas pipeline would be in grave danger.

On February 29, U.S. Secretary of State, Hillary Clinton expressed frustration with Pakistan’s intention to push ahead with the IP pipeline at a hearing before the House Appropriations Subcommittee on State and Foreign Operations. She threatened sanctions that “would be particularly damaging to Pakistan because their economy is already quite shaky,” should Pakistan continue with its commitment to build the IP gas pipeline and hence, violate the Iran Sanctions Act. While a proposed Iran-Turkey pipeline appears to progress sans sanctions, Pakistan could face an immediate termination of financial and military assistance.

Secretary Clinton’s remarks have raised serious objections, and have only made Pakistan more adamant about continuing with the project. The “threat” prompted brave words from Foreign Minister Hina Rabbani Khar: “We are a sovereign country and we will do whatever is in the interest of Pakistan. All of these projects are in Pakistan’s national interest, and will be pursued and completed irrespective of any extraneous considerations.”

In November 2010, similar defensive posturing was prompted when Ambassador Munter stated that “the plan to get gas from Turkmenistan is a better idea” than the IP pipeline. Pakistani Information Minister Firdous Ashiq Awan slammed the comment, stating, “Islamabad will not accept any dictation regarding its internal affairs from any foreign country. Gas from Iran is in the country’s best interest.”

However, it is still unclear whether the IP gas pipeline is indeed in the best interests of the country. The pre-feasibility study that will determine whether the pipeline should be built by estimating the finances needed and the expected timeframe of the project has only just begun. The most pressing issue Pakistan will face if it decides to construct the IP gas pipeline, is that of raising finances. The issue has gained geo-political attention, and a consortium led by the Industrial and Commercial Bank of China (ICBC) has recently pulled out of the project, prompting the Pakistani government to look elsewhere for finances. The federal government is currently negotiating a deal with Russian giant gas monopoly, Gazprom, for financial and technical assistance. While no agreement has currently been reached, senior level discussions are underway. With a crippled economy and diminished finances, Pakistan may very well be unable to embark on the project due to lack of funds from international investors.

With Pakistan still grappling for funds, and the feasibility study commissioned by Pakistan not expected to be completed before October 2013, vehement U.S opposition and rhetoric is premature at this moment. Sanctions would severely affect the economy, and Pakistan is unlikely to be ready to take that risk. Most recently, Pakistan hired experts to study the consequences of the sanctions, should it move ahead with constructing the pipeline. While the country can benefit immensely from an energy pipeline with Iran, being closely associated with a nation receiving so much negative international attention may do it more harm than good.

Without a clear argument and only an unclear picture of the project itself, Pakistan’s determination to construct the pipeline is simply a political move in response to foreign interference in internal matters, and nothing more than that at this moment.

Armed with this realization and an awareness of the rampant anti-Americanism in Pakistan, the United States needs to adopt a more sensitive and informed approach to tackle the equally sensitive issue of the IP pipeline. The United States must differentiate between nuclear development and regional cooperation. By encouraging trade and energy agreements, it could illustrate a genuine concern for peace and stability in the region, as well as repair America’s image abroad. The United States must show a serious commitment to alleviating the energy crisis in Pakistan, and hold talks with key players in the private sector. The private sector will not only serve as a wealth of information and a vehicle of action but also as a prime interlocutor.

The State Department is currently helping Pakistan with thermal energy generation, and investing in dams, but it must also consider working jointly with Pakistan on stand-alone power projects that utilize wind and water, contain leakages that remain a prime reason of energy wastage, suggest mechanisms to avoid energy theft, and foster dialogue between experts in the field.

Finding support for a conciliatory approach may not be easy. The Obama administration is facing tough questions at home on its continued engagement with the Af-Pak region, having achieved the objective of killing former al-Qaeda leader Osama bin Laden. Defending the war in Afghanistan and securing a $2.2 billion budget in economic and security assistance for Pakistan will be difficult. Additionally, pressuring South Asian countries to ostracize Iran will only lead to more animosity. The need of the hour is cooperation, not sanctions. Illustrating a true commitment to addressing Pakistan’s greatest handicap, instead of condemning regional policy decisions, will open up a world of opportunities for both sides.

This entry was posted on Thursday, April 5th, 2012 at 1:50 pm and is filed under Iran, Pakistan.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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